U.S. SECURITIES AND EXCHANGE COMMISSION
                           Washington, DC 20549

                              FORM 10-KSB/A-1
(Mark One)
      [X]  Annual report pursuant to Section 13 or 15(d) of the Securities
           Exchange Act of 1934
               For the fiscal year ended October 31, 2000
      [ ]  Transition report under Section 13 or 15(d) of the Securities
           Exchange Act of 1934
               For the transition period from ________ to ________
      Commission file number            0-20303
                              --------------------------

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
         ---------------------------------------------------------
               (Name of small business issuer in its charter)

           Delaware                                      13-2846796
    ------------------------------------------------------------------------
 (State or other jurisdiction of                      (I.R.S. Employer
  incorporation or organization)                     Identification No.)



 4 Hardscrabble Heights, P.O. Box 382, Brewster, NY          10509
----------------------------------------------------------------------------
(Address of principal executive offices)                   (Zip Code)

                              (845) 277-8100
                   -------------------------------------
                       (Issuer's telephone number)

Securities registered under Section 12(b) of the Exchange Act:  None.
                                                                ----
Securities registered under Section 12(g) of the Exchange Act:

                           Title of Each Class
                       ---------------------------

                      Common Stock, $.0001 par value
                  --------------------------------------

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes     X     	No
    --------    -----------

     Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]

     State issuer's revenues for its most recent fiscal year:  $12,833,916
for the fiscal year ended October 31, 2000.

     State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which
the common equity was sold, or the average bid and asked price of such
common equity, as of a specified date within the past 60 days:  $1,523,204
as of January 23, 2001.  The aggregate market value was based upon the
closing price for the Common Stock, par value $.0001 per share, as quoted
by the NASDAQ for such date.

     (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PAST FIVE
YEARS)Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes           	No
   ---------    ----------

               (APPLICABLE ONLY TO CORPORATE REGISTRANTS)
     State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:  As of January 17,
2001, 2,559,453 shares of Common Stock, par value $.0001 per share.

                  DOCUMENTS INCORPORATED BY REFERENCE
     If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part
II, etc.) into which the document is incorporated:  (1) any annual report
to security holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of
1933 ("Securities Act").  None.

     Transitional Small Business Disclosure Format (check one):
Yes               No     X
   -----------       ---------

<PAGE>

                                 PART I

ITEM 1.     DESCRIPTION OF BUSINESS

OVERVIEW

            Touchstone Applied Science Associates, Inc. (the
"Company" or "TASA") serves the education market with
assessment and instructional products, and as of November 1998,
in the post-secondary proprietary school market.  Prior to new
executive management in 1994, the Company's primary business was
reading assessment through the publishing and sale of its
proprietary tests and related assessment tools.  Since 1994, the
Company's current management has implemented a strategy to
broaden the Company's services in the education market.  In the
Company's fiscal years ended October 31, 1997 and 1998 ("Fiscal
1997" and "Fiscal 1998", respectively) and through the beginning
of the fiscal year ended October 31, 1999 ("Fiscal 1999"), the
Company completed three acquisitions in three core segments of
the education market: assessment, instruction and educational
delivery.  The net effect of the Company's acquisition strategy
is that TASA's revenues increased from $2.5 million in the fiscal
year ended October 31,1996 ("Fiscal 1996"), the last fiscal year
prior to the acquisitions, to over $12.8 million in the fiscal
year ended October 31, 2000 ("Fiscal 2000").

            The need to develop fundamental literacy skills has
long been recognized as essential to a student's progress and
success throughout school and life.  The Company's proprietary
instructional and assessment products relate directly to the
teaching and measurement of progress of literacy skills. The
Company's language arts instructional products for grades K-4
provide students with consumable workbook series designed to
strengthen skills. The Company's other products for the grades K-
4 instructional market include consumable workbooks for the
development of other important skills, such as penmanship, social
studies, science and the teaching of English, particularly
English as a Second Language ("ESL").  The Company's Degrees of
Reading Power(R) ("DRP") tests and related products enable a
school, district or other entity to assess an individual's
reading comprehension ability.  These tests allow an individual's
reading development to be tracked over time and are often used to
audit a school's success in the teaching of reading.
Additionally, the Company will introduce a new language arts,
early childhood test entitled "Signposts" in the spring of
2001, and will launch its revised ESL test, MAC II, during the
fall of 2001.  The Company also owns a custom-testing division,
which responds to requests from state education departments,
school systems and publishers to create client-designed
assessment programs.

            The third market served, educational delivery,
positions the Company to participate in the significant growth
occurring in post-secondary education.  The Company, through its
indirect wholly owned subsidiary MESI Acquisition Corp. ("MESI"),
recently acquired substantially all of the assets of the Mildred
Elley Schools, Inc. ("Mildred Elley"), a New York State
accredited, degree-granting school that provides post-secondary
students with a broad-based curriculum in business, health,
travel, information technology and paralegal training. Mildred
Elley's principal campus is located in Latham, New York, with an
additional branch in Pittsfield, Massachusetts.

            The Company was incorporated in the State of New York
in 1976 and, in 1991, changed its corporate domicile to Delaware.
It became a public company in 1992.  TASA's corporate
headquarters are located at 4 Hardscrabble Heights, P.O. Box 382,
Brewster, New York 10509.  The Company's telephone number is
(845) 277-8100 and its facsimile number is (845) 277-3548.  The
Company maintains a website at www.tasa.com.  As used in this
Report, the terms "Company" and "TASA" refer to Touchstone
Applied Science Associates, Inc. and its subsidiaries, unless the
context otherwise indicates.

            Except for historical information, the material
contained in this Description of Business is forward-looking.
For the purposes of the safe harbor protection for forward-
looking statements provided by the Private Securities Litigation
Reform Act of 1995, readers are urged to review the list of
certain important factors set forth in "Cautionary Statement for
Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995" below, which may cause
actual results to differ materially from those described.

ASSESSMENT PRODUCTS AND RELATED SERVICES

            TASA designs, develops, calibrates, publishes, markets,
and sells educational reading assessment tests to elementary and
secondary schools, colleges, and universities throughout the
United States and Canada.  The Company's reading comprehension
tests are based on its proprietary Degrees of Reading Power (DRP)
assessment methodology.  DRP tests are published in three
versions: Primary, Standard, and Advanced.  The Company's
products measure an individual student's reading ability in a
non-culturally biased manner and allow tracking of an
individual's reading development over time.

            DRP TESTS.  Management believes that DRP tests are
widely recognized as being advanced state-of-the-art in
educational assessment.  Based on descriptions contained in Tests
in Print published by the Buros Institute of Mental Measurements
(which endeavors to cover all tests published in the United
States), it is management's belief that:

            . DRP tests were the first commercial standardized tests
              whose results can be directly interpreted with respect
              to the written materials that students can read; and

            . DRP tests are the only existing instruments that can
              measure progress toward one or more standards or
              requirements that are established by examining how well
              prose in books or other sources must be comprehended
              for particular purposes.

            Consequently, the DRP tests are especially useful in
accountability assessments of a school's teaching performance and
in measuring an individual's reading level. As a result,
management believes that DRP tests are widely recognized as being
state of the art in educational assessment.

            DRP tests measure how well students understand the
meaning of whole text.  These tests determine, as much as is
possible in a testing situation, how well a student reads under
real-life conditions, both in and out of school. Primary and
Standard DRP tests are direct measures of fundamental reading
comprehension, defined as how well students can process text as
it is being read.  Advanced DRP tests extend this definition of
reading comprehension.  Advanced DRP test items require students
to engage higher level cognitive processes needed to think about,
analyze or evaluate propositions in text.

            DRP tests consist of nonfiction paragraphs and/or
passages on a variety of topics, each written, edited, and
calibrated by the Company.  The individual test passages are
stored in the Company's "Test Passage Bank", and each test is
created by selecting the appropriate test passages from the Test
Passage Bank to satisfy the criteria set for a particular test.
Each passage undergoes a two-year process of development and
calibration and has an estimated useful life of 11 years; a
passage is introduced initially in a "secure" form of test
after which it is available in "shelf" form in the Company's
test catalogs and then in practice tests.  Management believes
that approximately four million DRP tests, for which the Company
is the sole source proprietor and publisher, were administered in
2000 in states, school districts, and college and university
testing programs.

            TYPES OF DRP TESTS.  Specially prepared "secure" forms
of the Company's DRP tests are licensed for one-time or limited
use by states while other "shelf" forms listed in the Company's
catalogs are licensed for an indefinite period of time to schools
and districts throughout the United States and Canada.  Secure
test forms are composed of text and test items that have never
before been administered and are typically used in only one test
administration as a secure test.  The Company provides secure
tests annually for administration in certain grades by the states
of Connecticut, New York, and Virginia.

            THE MACULAITIS TEST.  In Fiscal 1997, TASA acquired the
Maculaitis Assessment of Competencies test (the "Maculaitis
Test"), which is a comprehensive English language assessment and
evaluation program.  It is intended for use in ESL, Bilingual
Education and Limited English Proficiency ("LEP") programs.  In
Fiscal 1998, the Company completed a series of revisions aimed at
improving the overall ease of use and marketability of the test.
Management believes that these revisions have given the
Maculaitis Test wider appeal.  Currently, the Company is making
more substantive revisions that management believes are necessary
to further enhance the test's marketability.  The new MAC II will
be launched in the fall of 2001, complete with new test norms.

            The Maculaitis Test is currently authorized for use in
the State of New Jersey.  Current sales of the Maculaitis Test
are primarily concentrated in New Jersey, although some sales are
attributable to a number of other states.  Beck Evaluation &
Testing Associates, Inc., the Company's custom test division
("BETA"), is currently in the third year of a contract with the
State of Texas to design a test to be used by all state LEP
students in grades 3-8.  Management believes that both the
Maculaitis Test and the BETA contract will place the Company in a
unique position, increasing its potential for future growth in
the LEP/ESL assessment field.

            SIGNPOSTS(TP) EARLY LITERACY ASSESSMENT SYSTEM.  In the
spring of 2001, management expects that the Company will
introduce its new Signposts(TP) Early Literacy Assessment System
("SIGNPOSTS").  Signposts is a comprehensive system designed to
provide a unique set of assessments and integrated instructional
activities for students in grades K-3.  Signposts spans a range
of literacy strands-reading, writing, listening, and speaking-
and includes a pre-DRP reading test and measurement scale for
emergent readers.  Management believes that the pre-DRP test's
downward extension of the existing Primary DRP test will help
both the Signposts and DRP programs in future adoptions.

            TEST SCORING AND RELATED REPORTING SERVICES.  The
Company provides scanning, scoring, and reporting services for
DRP tests to schools and districts.  Company-copyrighted test
answer sheets or licensed answer sheets are required for the
administration of all of the Company's tests.  Answer marks on
these sheets are machine-read by scanner-computer systems and
interpreted by Company-proprietary scoring and reporting
software.  Company-copyrighted conversion tables are used to
convert the total number of right answers into a DRP score that
indicates how well a student can comprehend text of a given
difficulty (readability).  These DRP scores also can be
interpreted normatively (i.e., in terms of national percentile
norms that indicate a student's percentile rank in relation to
students nationally in his or her grade) using the Company's
proprietary data.  All District, School and Class Level Reports
of DRP test results are copyrighted by the Company, as are
various Parent and Individual Reports that may be ordered by
school systems for inclusion in permanent records.  Third-party
firms, as well as state agencies that provide scanning and
scoring services to schools, also may be licensed to score the
Company's tests.  Further, the Company has licensed its
proprietary scanning and scoring software to five large school
systems.

            SOFTWARE PRODUCTS.  The Company designs and markets
computer software products that are sold as instructional aids or
analytical tools for reading assessment.  Among the products are
MicRA-->DRP II, which allows the user to estimate the DRP
difficulty rating of instructional materials, and DRP-->EZ
Converterr, which permits those who score DRP tests by hand to
easily convert raw scores to criterion-referenced DRP scores and
DRP norms.

            In 1996, the Company introduced DRP-->Booklinkr which
enables teachers to find appropriate books for each student based
upon interest categories and reading ability.  The database of
books (over 15,000) increases yearly and modifications to the
software each year make it more user friendly .  Over the past 24
months, DRP--> Booklink has received wide acceptance.

            The Company reports revenues from proprietary test
products as Assessment Income.

CUSTOM TEST PRODUCTS AND RELATED SERVICES

            BETA provides consulting services to states, schools
and textbook publishers. BETA's business is approximately equally
divided between work for states and work for publishers. Since
its acquisition by TASA in January 1997, BETA has concentrated on
increasing its test assessment and design services to states.
This effort has been successful, and BETA now provides its test
design and psychometric services to state customers in Delaware,
Indiana, Massachusetts, Michigan, Minnesota, North Carolina,
Ohio, Texas, and Virginia.  Most recently, BETA was awarded a
$1.5 million contract from the State of Michigan to help develop
an alternative assessment test for special education students.
This represents the second major state (Texas) where BETA has
alternative assessment assignments.

            BETA's custom assessment services to states are
provided either directly or indirectly, typically through two of
the largest commercial contractors in the contract/customized
assessment markets, NCS Pearson and Harcourt.  Generally, the
business strategy of BETA is to provide these specialized
services for the major state contracts as a subcontractor,
primarily for assessment or psychometric services and actual test
design and development.  The prime contractor provides for all
the printing, logistics, warehousing, scoring and reporting
services necessary to complete state contracts.

            In Fiscal 2000, BETA gained significant non-state
assessment business from agreements with publishers, such as
Princeton Review, Macmillan/McGraw-Hill, and the Core Knowledge
Foundation.

            The Company reports revenues from BETA's operations as
Assessment Income.

INSTRUCTIONAL PRODUCTS

            Through Modern Learning Press, Inc. ("MLP"), the
Company designs, publishes and distributes affordable
"consumable" student workbooks for grades K-6, and creates and
publishes books and pamphlets for elementary school teachers and
parents.  The elementary instructional workbook series currently
offered by MLP ranges from the teaching of phonics, penmanship,
ESL, and reading comprehension to vocabulary development.  The
affordable pricing of the consumable series positions MLP to take
advantage of the growing pressure for cost-effective purchasing
by school districts.  Thus, MLP's growing line of affordable
"consumable" workbooks or learning books for students in grades
K-6 allows schools to purchase high-quality workbooks at a
significantly decreased acquisition cost per pupil.

            MLP was organized by TASA in May 1997 to acquire
substantially all of the operating assets of Programs for
Education, Inc.  The market served by MLP consists of an
estimated 16 million total students in grades K-4, establishing
an approximate market size of $30-$35 million for each workbook
series.  Moreover, teachers generally make the purchase decision
in these grades as opposed to school boards or agencies, which
control the purchasing decisions in higher grades.  To complement
its workbook series, MLP also creates and publishes a collection
of books and pamphlets for elementary school teachers and
parents.

            MLP offers a large library of books and pamphlets that
help elementary schools achieve their teacher and parent
information objectives.  MLP's expanding series of titles for
teachers provide affordable quality books on professional
subjects written by recognized educational experts.  Its pamphlet
series, generally purchased by schools for distribution to
parents, provides guidance to parents on topical issues.
Additionally, in the Spring of 2000, MLP introduced new,
consumable Signposts instructional materials which can be
integrated, optionally, with the SIGNPOSTS EARLY LITERACY
ASSESSMENT SYSTEM under development by TASA's assessment
division.  The full line of products will be launched in early
2001.

            Management believes that growth opportunities exist for
MLP in the elementary school market.  Many states, as well as the
Federal government, are currently discussing expansion and
changes in elementary education, either of which would have to
include additional funding for any new programs.  These changes
will provide new and expanded opportunities for the development
of new workbook and professional education book series.
Management believes that MLP is well-positioned to benefit from
the changes expected to occur in elementary education.

            The Company reports MLP's revenues as Instructional
Products.

EDUCATIONAL DELIVERY

            In early Fiscal 1998, as part of its strategic plan,
the Company decided that the post-secondary proprietary school
market was an area in which it wanted to compete due to
attractive characteristics including a large growing market,
countercyclical growth trends, and attractive levels of
profitability.

            In November 1998, the Company, through MESI, a wholly-
owned subsidiary of TASA Educational Services Corporation
("TESC"), which is a wholly-owned subsidiary of the Company,
purchased substantially all of the assets of Mildred Elley, as
the platform for the Company's entrance into the post-secondary
school market.  Mildred Elley is a two-year, New York State
degree-granting institution and has been in operation for over 80
years.  Mildred Elley's principal campus is located in Latham,
New York, with an additional branch in Pittsfield, Massachusetts.

            The Mildred Elley schools offer programs in business,
paralegal, travel, information technology and health fields. Each
program is designed so that the student masters important skills
and acquires knowledge that will become critical to a lifelong
learning plan and economic success. The goal is for students to
succeed in their programs and obtain secure jobs in their field.

            The two locations have a total enrollment of 638
students.  The current enrollment consists of adult students with
a median age of 29.  Many of these students have been dislocated
workers and other individuals having various levels of education
who need additional skills in order to maintain or improve their
current employment situation.  Average household income of
Mildred Elley's students is $16,000 to $20,000. The student body
is 80% female and 20% male.

            All of the programs are offered at both campuses. The
following table shows Mildred Elley enrollment by program by
location for the 2000 fall term:

                                                                   Total
                                         Albany    Pittsfield    Enrollment

Accounting Systems Specialist. . . . .     17           7            24

Business Management. . . . . . . . . .     53         N/A            53

Information Technology. . . . . . . . .   100          10           110

Medical Assistant. . . . . . . . . . .     96          39           135

Office Technologies. . . . . . . . . .     42          33            75

Paralegal. . . . . . . . . . . . . . .    103          13           116

Software Specialist. . . . . . . . . .     43         N/A            43

Travel/Tourism. . . . . . . . . . . . .    12         N/A            12

                                 Total:   466         102           568



            Revenues from the post-secondary proprietary school
division were $5,150,496 in Fiscal 2000 and are reported as
Educational Delivery revenues.

            We believe that four events that occurred in Fiscal
2000 will increase the size of Elley's student body:

            Effective January 2001, Elley is back in the Federal
Title IV student loan program;

            This is Elley's second full year for its computer
technologies program;

            Elley has signed an articulation agreement with a State
University of New York (SUNY) school; this means that students
can go to Elley for 2 years and matriculate to a 4-year school;

            Elley has obtained a contract with the Federal Job
Corps program and has been approved by ACICS and the New York
State Department of Education for a third location in Glenmont,
New York.

MARKETING

            The Company markets its assessment products and
services as follows:

            (a) Sales of secure tests to large-scale users (such
as state education departments) are conducted directly by the
Company's staff.  This includes making presentations and
negotiating contracts and license agreements.

            (b) Sales of the Company's products and services as
described in the Company's catalogs are made primarily through
direct mail campaigns to elementary school, secondary school and
college markets.  The Company also exhibits its products at
educational trade shows and advertises in trade journals.

            (c) In addition, the Company's staff and its
independent consultants provide presentations and in-service
workshops supporting the Company's products.

            (d) Sales of custom-designed testing and consulting
are accomplished via bidding processes and attendance at
professional meetings.

            The Company sells its assessment products on a contract
or purchase order basis in accordance with a published price
list.  Depending upon the contract or the purchase order, the
Company sells its products on a net 30-day or other contractual
terms.  The Company does not offer extended credit terms to its
customers.  Historically, bad debts have not been material.

            In the past, the Company marketed its instructional
products almost exclusively through direct mail programs. In late
Fiscal 1999, it began assessing the viability of selling such
products through its independent sales representatives.  First-
year results indicate this program was successful, and MLP is
looking for additional representatives.

            Currently, Mildred Elley advertises through the print
media, television and radio, and the Company anticipates that it
will continue to use such media in the future.

COMPETITION

            Success in the educational industry will be based on
scientific and technological superiority, service, product
support, the availability of patent protection, access to
adequate capital, the ability to successfully develop and market
products and processes and the ability to obtain government
approvals.  Although there is intense competition in the industry
and there are both domestic and foreign companies which may be
deemed dominant competitors, the Company believes that the
features of its products coupled with its ability to provide
quality services will permit the Company to compete successfully
in its designated marketplace.

            ASSESSMENT.  The Company is subject to competition from
various sources.  The Company's principal competition comes from
established for-profit and non-profit companies in the testing
business and testing departments within certain states and school
districts, all of which are considerably larger and have greater
financial and human resources and marketing capabilities.
Competition may also come from education publishers who include
reading comprehension tests with their instructional materials
and companies that distribute reading motivation programs.

            Although there are a number of for-profit firms that
develop, publish, market, and distribute educational tests, the
market is dominated by three:  CTB/McGraw-Hill, Lake Forest,
Illinois, and Monterey, California; Harcourt Educational
Measurement, San Antonio, Texas; and The Riverside Publishing
Company, Chicago, Illinois.  As large, well-established
publishers of educational tests and related products and
services, these firms are considered strong competitors of the
Company.

            There are a number of non-profit organizations that
develop, publish and distribute educational tests.  For example,
the American College Testing Program (ACT), Iowa City, Iowa;
American Council on Education (ACE), Washington, DC; and
Educational Testing Service (ETS), Princeton, New Jersey.  In
addition, there are various organizations that sponsor
educational tests even though they do not have the technical
capability to produce tests.  For example, The College Board, New
York, New York, sponsors the Scholastic Assessment Test (SAT)
which is developed for The College Board by ETS.  All of these
non-profit organizations have, or have access to, the capability
to develop, publish and distribute tests to schools.  Currently,
ACT, The College Board, and ETS publish one or more educational
tests for the school market.

            There are a number of for-profit and non-profit
organizations that provide test design, production and consulting
services to states under contract.  For example, Advanced Systems
in Measurement and Evaluation, Inc., Dover, New Hampshire;
National Evaluation Systems (NES), Amherst, Massachusetts; and
NCS Pearson, Iowa City, Iowa; are among the for-profit firms that
supply test development, printing, distribution, and scoring
services to individual states under contract.  Among the non-
profit organizations, ACT and ETS have conducted such contract
work for states and ETS is the current contractor for the
National Assessment of Educational Progress.  By enabling states
to have tests developed and administered to their own
specifications, these for-profit and non-profit organizations
compete indirectly with the Company's assessment division.  In
terms of size alone, these firms have greater marketing
capability and resources than does the Company.

            The Maculaitis Test exists in a competitive market;
however, several of the non-profit and for-profit testing
companies do not have a product that is in direct competition
with the test.  The major source of direct competition is a set
of products published by CTB/McGraw-Hill known as the Language
Assessment System series (the LAS-O, the LAS-R and the LAS-W),
and the Language Assessment Battery (the LAB) which is a test
that was developed by the New York City Board of Education.  Each
of these test series is designed to assess a student's current
level of knowledge of the English language and is administered in
English.  A number of other test series produced by other for-
profit publishers, such as Harcourt and Riverside, are designed
exclusively for the Spanish language market and are administered
primarily in Spanish.

            INSTRUCTIONAL MATERIALS.  The elementary school market
for the consumable books published by MLP is both huge and highly
competitive, with every major publisher and numerous smaller
publishers providing material.  MLP's disadvantage is that its
marketing resources are significantly smaller than those of the
major publishers.  MLP' s advantage is that, with its smaller
corporate structure, decisions can be made rapidly so that new
products can be available in a fraction of the time required by
the major publishers.  MLP's other competitive advantage is a
lower selling price than that generally applicable to other
consumable books with which MLP's products compete.  MLP has
developed a unique position through direct mail sales.

            EDUCATIONAL DELIVERY.  The post-secondary education
market is highly competitive.  The Mildred Elley schools compete
for students and faculty with public and private two-year and
four-year colleges as well as other proprietary schools.  The
available student pool for the Mildred Elley schools is from a
limited geographic area.  Many of the colleges and other
proprietary post-secondary schools in such area have greater
resources than are currently available to the Mildred Elley
schools.  Some of these schools offer programs similar to those
of the Mildred Elley schools and some offer programs not
currently available at the Mildred Elley schools.  While there
can be no assurances, the Company believes that the Mildred Elley
schools will be able to compete successfully in these markets
because of the quality of its faculty, education programs and job
placement.

EMPLOYEES

            As of October 31, 2000, the Company employed a total of
172 employees, 90 on a full-time basis, and 82 on a part-time
basis.  Of the 172 employees, 14 are engaged in research and/or
test development, 9 are in operations, 6 are in executive
capacities, 16 are in marketing in its assessment and
instructional divisions, and 127 are in the educational delivery
division.

GOVERNMENT REGULATIONS

            ASSESSMENT AND INSTRUCTIONAL MATERIALS.  The degree of
government regulations to be imposed upon the Company in the
assessment and instructional materials fields is uncertain at
this time. Under Title I of the 1994 Improving America's Schools
Act (IASA), schools that serve large numbers of children from
low-income families receive financial assistance from the Federal
government to expand and improve their educational programs to
meet the needs of educationally deprived students.  Title I
regulations include a requirement that schools receiving Title I
funds must evaluate student growth or progress in reading.  It is
management's belief that State Education Authorities (SEAs) find
DRP test results to be in accord with the regulations for Title
I, as DRP tests are used by schools to evaluate Federally-
supported Title I programs.

            Management believes it may be necessary to obtain other
governmental approvals for its products.  If necessary, a portion
of the revenues of the Company may be directed toward obtaining
such approvals, and any such expenditures will occur without the
assurance that approvals will be achieved. Additionally, the
extent of potentially adverse government regulations which might
arise from future legislative or administrative action cannot be
predicted.

            EDUCATIONAL DELIVERY.  The post-secondary proprietary
school industry is highly regulated with respect to accreditation
and government funding issues.  The Company acquired Mildred
Elley through MESI, a wholly-owned subsidiary of TESC, in
November 1998.  As a result of the change in ownership of Mildred
Elley, the Mildred Elley schools were required, under applicable
regulation, to apply to the accrediting agency, the U.S.
Department of Education (the "DOE"), and the applicable state
department of education for approval to operate under its new
owners.  The accrediting agency and the DOE approved the change
of ownership during Fiscal 1999. The state agency generally takes
24 to 36 months. The New York State Education Department
reaccreditation review occurred in late spring 2000.  We received
a copy of the agency's comments and responded in a timely
fashion.  We believe that based upon the agency's comments and
our responses, the agency will grant reaccredidation, although we
have no timetable.  However, if the reaccreditation is not
granted, the Company will have to re-evaluate its degree-granting
capabilities.

            Students attending Mildred Elley schools finance their
education through a combination of individual resources and
government sponsored financial aid in the form of loans and
grants.  The Company estimates that over 70% of students
currently enrolled at the Mildred Elley schools receive some form
of government-sponsored assistance.  In the past fiscal year,
students received tuition funds under Federal and New York State
grant programs, as well from loans funded by Mildred Elley.

            The Federal government provides a substantial part of
its support for post-secondary education in the form of grants
and loans to students attending an institution certified as
eligible by the DOE.  The Higher Education Act of 1965, as
amended (the "HEA"), and the regulations promulgated by the DOE
thereunder subject the Mildred Elley schools to significant
regulatory scrutiny on the basis of numerous standards that
schools must satisfy in order to participate in the various
Federal student financial assistance programs under Title IV of
the HEA.  Included among these standards are the following: (i)
the institution must maintain a rate of default by its students
on federally guaranteed or funded student loans that is below a
certain rate; (ii) the proportion of an institution's revenue
that may be derived from Title IV programs is limited; (iii) the
institution must adhere to certain financial responsibility and
administrative capability standards; (iv) the institution must
adhere to certain change in ownership restrictions; and (v) the
institution must achieve certain standards in program completion
and placement.

            Due to default rates on student loans prior to the
Company's acquisition of Mildred Elley, Mildred Elley students
did not qualify for loans under Title IV in Fiscal 2000.  In the
fall of 2000, the Mildred Elley schools requalified for the Title
IV program.  The first students to be able to take advantage of
the Federal loan program will be those enrolled in the January
2001 module.

PATENTS, COPYRIGHTS, TRADEMARKS, TRADE SECRETS AND ROYALTIES

            The Company regularly asserts copyrights to all of its
assessment and instructional materials.
The following are registered trademarks and/or service
marks of the Company:  TASA, the TASA logo, DRP Program The
Readability Standard, Browzer-->BOOKLINK, DRP, DRP--> BOOKLINK,
DRP-->EZ Converter, DRP Linking Text to Ability, Booklore,
BookMatch, DWM, Degrees of Reading Power, Degrees of Word
Meaning, MicRA-->DRP, TextSense, TASA Literacy (pending),
Signposts (pending), We've Done the Research for You.
Additionally, Change-A-Print Frame is a registered trademark of
MLP.

            Trade secrets are maintained by licenses for software
and certain proprietary data.  In addition, all employees execute
nondisclosure agreements as a condition of employment.

            In connection with the purchase by MLP of substantially
all the operating assets of Programs for Education, Inc. and
pursuant to a Royalty Agreement between MLP and Bernard Shapiro,
the founder of Programs for Education, Inc., MLP agreed to pay to
Mr. Shapiro a royalty on sales of certain titles for a term of
seven years following the closing of the acquisition in Fiscal
1997 in an amount equal to a minimum of $80,000 annually, with a
maximum of $120,000 in the first year, which increases each year
to a maximum of $240,000 in the seventh year.  The Company paid
Mr. Shapiro a total of $157,943 in royalties in Fiscal 1999 and
$151,279 in Fiscal 2000.

            When MESI acquired substantially all of the assets of
Mildred Elley, it also acquired the names of Mildred Elley,
including "Mildred Elley School, Inc.", "Mildred Elley
Business School" and all variations and derivatives thereof.

ITEM 2.     DESCRIPTION OF PROPERTY

            The Company owns a 30,000 square foot building in
Brewster, New York.  The building was constructed in 1987, with
the second phase completed in 1991.  In Fiscal 1997, the Company
retired the first and second mortgages on the property and
remortgaged the facility with MSB Bank, now Hudson United Bank.

            MLP rents approximately 5,000 square feet for its
service and order fulfillment centers in Rosemont, New Jersey on
a month-to-month basis.  In September 2000, it vacated its
editorial facilities in Honesdale, Pennsylvania, and consolidated
those activities into Brewster, New York.

            BETA rents a small office facility of 500 square feet
in Austin, Texas, which also affords good proximity to the Texas
Education Agency. The Company made the decision to open the
office in Texas because of the volume of business in that state.

            Mildred Elley's principal campus is located in Latham,
New York (near Albany), with an additional branch in Pittsfield,
Massachusetts.  Each campus contains teaching facilities,
administrative offices and admissions offices.  Mildred Elley
leases all of its facilities.  The leases have remaining terms
ranging from 1 to 10 years.  The Company monitors facility
capability in light of current utilization and projected
enrollment growth.  The Company believes that the facilities
occupied by the Mildred Elley schools now can accommodate
expected near-term growth.

            The Company expends its resources for capital
improvements as necessary.

ITEM 3.     LEGAL PROCEEDINGS

            In January 2000, a former employee of Mildred Elley
commenced an action against the Company, MESI and an executive
officer of MESI in the Supreme Court of the State of New York in
the County of Albany.  The complaint alleges claims of wrongful
termination of employment and seeks damages as compensation.  The
Company believes that the allegations are without merit and is
vigorously defending the action.  The Company maintains directors
and officers liability insurance which, subject to a policy
deductible, insures the defendant officer, but not the Company,
against such claims.

            On August 31, 2000, the Company received a letter from
the former owner of Mildred Elley School, Inc., alleging certain
defaults in the payment of amounts due under the asset purchase
agreement between the Company and Mildred Elley School, Inc. and
the accompanying promissory notes of MESI (TASA's wholly-owned
subsidiary).  Such demand letter also alleges additional defaults
by MESI in the employment agreement between MESI and Faith Takes,
the former owner of the Mildred Elley School who is currently
MESI's president and chief executive officer.  The amounts
demanded by Ms. Takes aggregate $985,270 plus interest,
attorneys' fees and late fees.  The Company believes that it has
meritorious defenses and counterclaims to such allegations and is
pursuing resolution of these issues.  The foregoing alleged
defaults trigger a potential cross default under the Company's
outstanding 8% Subordinated Debentures, in the outstanding
principal amount of $3,530,141 (as of July 31, 2000) currently
held by Cahill Warnock Strategic Partners Fund, L.P. and
Strategic Associates, L.P.  The Company has not received a notice
of default from the holders of such Debentures.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            None.

<PAGE>

                             PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

            (a) The Company's common stock, par value $.0001 per
share (the "Common Stock") is traded in the NASDAQ small-
capitalization over-the-counter market ("Nasdaq") under the
symbol TASA.  As quoted in the Monthly Statistical Reports of the
National Association of Securities Dealers, Inc., the approximate
high and low closing prices for each fiscal quarter in the two
fiscal years ended October 31, 1999 and October 31, 2000 were as
follows:

                       Common Stock Prices
                       -------------------

       Fiscal Quarter:       High           Low

       1st Qtr 99           $3.376        $1.752
       2nd Qtr 99            2.624         1.375
       3rd Qtr 99            2.00          1.50
       4th Qtr 99            1.625         1.00

       1st Qtr 00            3.00          0.938
       2nd Qtr 00            4.469         1.250
       3rd Qtr 00            1.938         1.000
       4th Qtr 00            1.594         0.625

            As of the close of business on March 4, 1999, the
Company effected a one-for-four reverse stock split (the "Stock
Split") of the Company's Common Stock.  All stock prices and all
share amounts quoted in this Report have been adjusted to give
effect to the Stock Split.

            During the first quarter of Fiscal 2001 (through
January 16, 2001), the Company's Common Stock had a high price of
$1.16 and a low of $0.41.   On January 2, 2001, the Company
received a notice from Nasdaq stating that the company had failed
to meet the continued listing requirement of the SmallCap Market
because the price of the Company's Common Stock had been less
than $1.00 for 30 consecutive trading days.  The Company has 90
days to rectify this deficiency, which will require that the
Company's Common Stock close at a price of $1.00 or more for ten
consecutive trading days.  If the Company is unable to satisfy
this criterion, the Company's Common Stock will be delisted from
the Small Cap Market, and will be eligible for trading on the
Nasdaq Electronic Bulletin Board.

            These quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent
actual transactions.

            As of January 17, 2001, there were 80 holders of record
of the Company's Common Stock.  This number of holders of record
does not include beneficial owners of the Company's Common Stock,
whose shares are held in the names of various security holders,
dealers and clearing agencies.  The Company believes that the
number of beneficial owners of its Common Stock held by others or
in nominee names exceeds approximately 1,000 in number.  The
Company has not paid any cash dividends, and does not anticipate
doing so in the immediate future as it intends to invest any
earnings in the development of the Company's business.

            On November 27, 1998, pursuant to a prior transaction
with each of Cahill, Warnock Strategic Partners Fund, L.P. and
Strategic Associates, L.P. (collectively, the "Cahill, Warnock
Entities") (see "Certain Relationships and Related Transactions"
in Item 12, below), the Company redeemed all of the outstanding
shares of its Series A Preferred Stock for a nominal aggregate
redemption price.  Until the shares were redeemed, there were
1,500 shares of Series A Preferred Stock outstanding.  Each share
of Series A Preferred Stock had been entitled to cast 3,000 votes
per share on any matter brought before the stockholders of the
Company.  No shares of Series A Preferred Stock are currently
outstanding.

            (b) Not applicable.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
        OPERATION

            Except for historical information, the material
contained in this Management's Discussion and Analysis or Plan of
Operation is forward-looking.  For the purposes of the safe
harbor protection for forward-looking statements provided by the
Private Securities Litigation Reform Act of 1995, readers are
urged to review the list of certain important factors set forth
in "Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of
1995" below, which may cause actual results to differ materially
from those described.

COMPANY BACKGROUND

            For over twenty years, TASA has served the rapidly
expanding education market, primarily through the publishing and
sale of its highly regarded proprietary reading tests. Since
1994, new management has implemented a strategy to broaden the
Company's services within the educational marketplace. As a result,
the Company has completed four acquisitions since the beginning of
Fiscal 1997 and now serves three educational markets:  (1)
educational assessment and evaluation, (2) educational
instruction, and (3) educational delivery.  TASA revenues in
Fiscal 1996 were $2.5 million and have increased by acquisition
and internal growth to $12.8 million in Fiscal 2000.

            Prior to 1997, the Company's revenues were derived from
the publishing and distribution of its proprietary line of reading
tests. During Fiscal 1997, the Company acquired Beck Evaluation and
Testing Associates, Inc. ("BETA"), which operates as the Company's
custom test design division. In that same fiscal year, the Company
organized Modern Learning Press, Inc. ("MLP"), which purchased
substantially all of the assets of Programs for Education, Inc.,
and marked the Company's entrance into the instructional marketplace.
MLP designs, publishes and distributes affordable "consumable" student
workbooks that target grades K-6, and creates and publishes books and
pamphlets for elementary school teachers and parents. Also in Fiscal
1997, the Company purchased the Maculaitis Assessment of Competencies
test (the "Maculaitis Test"), which is a comprehensive language
assessment and evaluation program for English as a second language. In
Fiscal 1998, the Company organized a wholly-owned subsidiary, TASA
Educational Services Corp. ("TESC"), to operate and acquire post-
secondary proprietary schools. TESC completed its first acquisition
in the educational delivery field through its acquisition in
November 1998 of the 750-student Mildred Elley Schools ("Elley").

            Accordingly, in an effort to report revenues in a more
meaningful manner, the Company has segregated revenues into three
discrete segments: (1) assessment products and services revenues,
(2) instructional revenues, and (3) educational delivery revenues.
All prior periods have been recharacterized into these three segments
for comparative purposes.


            The following table sets forth the revenues in each of
the assessment, instructional and educational delivery divisions,
and the annual percentage change for each of these divisions, for
Fiscal 2000, 1999 and 1998:

            TASA Revenues Breakdown (in thousands of dollars) and % of
                           Year-To-Year Change


<TABLE>
<CAPTION>
                                             Fiscal Year Ended October 31,
                          ---------------------------------------------------------------
                           1998-
                           2000           2000             1999               1998
                           ----           ----             ----               ----

                             %                 %                  %                    %
                           Change     $     Change      $       Change      $        Change
                           ------    ---    ------     ---      ------     ---       ------

<S>                     <C>     <C>        <C>     <C>        <C>     <C>         <C>


Assessment Products
and Services Revenues..     19%    $4,897.9    7%     $4,591.5    11%    $4,123.2     32%

Educational Delivery
Revenues.............       N/A    $5,074.7   (4%)    $5,297.1    N/A    N/A          N/A

Instructional
Revenues.............       27%    $2,785.5   15%     $2,427.6    11%    $2,193.9     50%

Total
Revenues..........         102%   $12,758.1    4%    $12,316.3    95%     $6,317.1    38%

</TABLE>

            The following are selected ratios as a percentage of
revenues based on the Company's financial statements:

                                   Fiscal Year Ended October 31,
                                   -----------------------------

                                       2000      1999     1998
                                    ----------------------------


Revenues . . . . . . . . . . . . .     100%      100%     100%


   Gross Profit margins. . . . . .      61%       64%      69%

Operating Expenses:
   Selling Expenses. . . . . . . .      22%       20%      25%
   General & Administrative. . . .      43%       36%      41%
   Write Down of Software
    Development Costs. . . . . . .       1%      ----     ----
   Impairment of Test
    Passage Bank. . . . . . . . .        5%      ----     ----
   Loan Loss Recovery. . . . . . .     ----      ----      (3%)
                                   ----------------------------

   Income (Loss) from Operations       (10%)       8%       6%
     Net Interest Inc. (Exp.). . .      (6%)      (6%)     (3%)
                                   ----------------------------
   Pre Tax Income (Loss). . . . .      (16%)       2%       3%

   Net Income (Loss). . . . . . .       (9%)       1%       2%
                                   ============================


FISCAL 2000 AS COMPARED TO FISCAL 1999

          REVENUES.  For Fiscal 2000, the Company's revenues
          --------
were $12,758,124, representing a 4% increase, or $441,878,
over $12,316,246 for Fiscal 1999.  The overall increase was
attributable to internal growth of the Company's assessment
and instructional divisions.

          Revenues for assessment products and services,
through the Company's proprietary test and custom test
design divisions, increased 7%, or $306,381, to $4,897,923
in Fiscal 2000, from $4,591,542 in Fiscal 1999.  The
Company's proprietary test division, featuring DRP products,
reflected a revenue decrease of 8% as a result of a
declining volume of contractual sales primarily in the State
of New York due to the phase out of the PEP/DRP tests
previously administered in the third and sixth grades.
However, during the latter half of Fiscal 2000, the Company
secured a five-year $1.2 million contract for the continuance
of the New York State Regents Competency Test and also
launched its new series of DRP tests.  The new series of
DRP tests contributed to a 31% increase in catalog sales
during the fourth quarter of Fiscal 2000 versus the same
period in Fiscal 1999. Management believes that by securing
the New York State Regents Competency Test contract and
launching its new series of DRP tests, the Company should
continue to see revenue growth within the proprietary test
division throughout the upcoming fiscal year. While the Company's
proprietary test division saw an overall decline in revenues
during Fiscal 2000, the custom test design division, BETA,
posted a 40% increase for the same period.  This increase is
primarily attributable to growth in BETA's contractual
business.   As of October 31, 2000, BETA had contracts with
8 states representing more than $1.0 million in contracted
business for the upcoming fiscal year.

            Instructional revenues increased 15% in Fiscal
2000 from Fiscal 1999 (or $2,785,497 in Fiscal 2000 versus
$2,427,577 in Fiscal 1999).  This increase is a result of
the Company's reorganization of the instructional division,
more specifically, the addition and hiring of new
executive management, increased marketing efforts and the
addition of a new independent sales organization which now
represents and markets the Company's instructional products
in approximately 50% of the United States.  In late 1998,
management made the decision to shift its marketing focus
and direct sales representation as well as to engage in
cooperative marketing efforts.  Management believes that
these efforts should contribute to increased future revenue
growth for the Company's instructional division.

            The educational delivery division contributed
$5,074,704 to the Company's total revenues for Fiscal 2000,
which amount represented a 4% decrease (or $222,423) from
Fiscal 1999 revenues, for this division, of $5,297,127.  This
decrease can be primarily attributed to decreased student
census during the first and fourth quarters of Fiscal
2000 and the Company's modification to its revenue
recognition policy, adopted during the second quarter of
Fiscal 1999, as it relates to the educational delivery
division's revenues.

            COST OF GOODS SOLD.   Cost of goods sold in Fiscal
            ------------------
2000 increased by 10%, or $450,234, from $4,469,746 in
Fiscal 1999 to $4,919,980 in Fiscal 2000.  Cost of goods
sold as a percentage of revenues also increased from 36% to
39% due to a change in product mix.  This increase was
primarily the result of increased costs required to deliver
assessment products and services, more specifically, the
Company's custom test design division's services which are
typically associated with higher direct costs.

            GROSS PROFIT.   In Fiscal 2000, gross profit
            ------------
decreased minimally (less than 1%), or $8,356, from $7,846,500
in Fiscal 1999 to $7,838,144 in Fiscal 2000. The gross profit
margin percentage also decreased in Fiscal 2000 to approximately
61% from 64% in Fiscal 1999.  This percentage decrease can be
attributed to an increase in direct costs associated with
revenue growth contributed by the Company's custom test
design division.

            SELLING EXPENSES.  Selling expenses for Fiscal
            ----------------
2000 increased by 12%, or $305,368, from $2,505,934 in
Fiscal 1999 to $2,811,302 in Fiscal 2000.  As a percentage
of revenues, selling expenses increased to 22% in Fiscal
2000 versus 20% in Fiscal 1999.  These increases can be
primarily attributable to overall increased organizational
marketing efforts.

            GENERAL AND ADMINISTRATIVE.  The Company's general
            --------------------------
and administrative expenses increased 25%, or $1,075,199,
from $4,387,253 in Fiscal 1999 to $5,462,452 in Fiscal 2000.
General and administrative expenses as a percentage of sales
were 43% in Fiscal 2000 versus 36% in Fiscal 1999.  These
dollar and percentage increases were primarily the result of
management's decision to build the infrastructure of the
organization coupled with the further establishment of
adequate reserves and the write off of due diligence
expenses associated with failed acquisitions.

            WRITE DOWN OF SOFTWARE DEVELOPMENT COSTS.  In
            ----------------------------------------
Fiscal 2000, the Company took a one-time $120,853 charge for
the write down of software development costs associated with
certain of the Company's saleable computer software products
in order to adjust such products to their net realizable
value.  This one-time charge represented approximately 1% of
the Company's revenues for Fiscal 2000.  There was no such
charge in Fiscal 1999.

            IMPAIRMENT OF TEST PASSAGE BANK.  In Fiscal 2000,
            -------------------------------
the Company took a one-time $685,722 charge for impairment
of its test passage bank after deeming certain passages
within the bank to have little or no value as of October 31,
2000.  This one-time charge represented approximately 5% of
the Company's revenues for Fiscal 2000.  There was no such
impairment in Fiscal 1999.

            INCOME (LOSS) FROM OPERATIONS.  (Loss) from
            -----------------------------
operations for Fiscal 2000 was ($1,242,185) versus income
from operations of $953,313 in Fiscal 1999.  The loss in
Fiscal 2000 was principally due to the increase in selling
and general and administrative expenses coupled with the one-
time charges associated with the write down of software
development costs and impairment of the Company's test
passage bank.

            EBITDA.  Earnings (loss) before interest, taxes,
            ------
depreciation, and amortization decreased $1,290,949 to
$631,862 in Fiscal 2000 from $1,922,811 in Fiscal 1999.  As
a percentage of revenues, EBITDA decreased to 5% in Fiscal
2000 versus 16% in Fiscal 1999.  These dollar and percentage
decreases were essentially attributable to the increase in
general and administrative expenses which included costs
associated with the establishment of adequate reserves and
the write off of due diligence expenses associated with
failed acquisitions, coupled with a lower gross profit
margin resulting from an increase in revenues from the
Company's custom test design division.

            OTHER INCOME (EXPENSE).  Net other income
            ----------------------
(expense) increased to ($732,423) in Fiscal 2000 versus
($695,360) in Fiscal 1999.  This increase is primarily
attributable to a decline in income earned on temporary
investments and marketable securities as well as a decline
in other income.

            INCOME (LOSS) BEFORE INCOME TAXES.  The Company
            ---------------------------------
had a loss before income taxes of ($1,974,608) in Fiscal
2000 versus income before taxes of $257,953 in Fiscal 1999
representing a net decrease in Fiscal 2000 of ($2,232,561).
This decrease was the result of increased overhead, one-time
charges taken for the write down of software development
costs, impairment of the Company's test passage bank and the
write off of due diligence expenses associated with failed
acquisitions, and increased costs of goods sold.

            NET INCOME (LOSS) AND BASIC INCOME (LOSS) PER SHARE.
            ---------------------------------------------------
Net loss after taxes was ($1,165,638) for Fiscal 2000 versus net
income after taxes of $180,757 for Fiscal 1999.  For Fiscal
2000, basic loss per share was ($.48) based on weighted
average shares outstanding of 2,438,167.  For Fiscal 1999,
basic income per share was $.08 based upon 2,141,801
weighted average shares outstanding.

FISCAL 1999 AS COMPARED TO FISCAL 1998

            REVENUES.  For Fiscal 1999, revenues were $12,316,246,
            --------
increasing 95%, or $5,999,132 over $6,317,114 for Fiscal 1998.
Of the $5,999,132 increase, $702,005 or 12% is attributable to
internal growth of the Company's assessment and instructional
divisions.  The balance of the increase is due to the acquisition
of Mildred Elley in November 1998 and the educational delivery
division.

            Revenues for the Company's assessment products
increased $468,307 or 11% to $4,591,542 in the current year
versus $4,123,235 in the prior year.  The Company's proprietary
test division which publishes the DRP product decreased 6% for
the year.  This decrease in revenues was attributable to the
declining volume of sales in New York State due to the shifting
from the PEP/DRP reading test in the third and sixth grades to an
alternative test for the fourth and eighth grades. As a result,
certain schools elected not to purchase our DRP shelf test for
alternative grades.  The second reason for the decrease in
catalog sales was the halving of orders from Texas for the
purchase of materials for their early childhood program.  The
Company, however, anticipated this decline as the industry
traditionally experiences a decline when schools reorder in the
second year of any program.

            BETA, which is the Company's custom testing division,
continues to grow as planned.  BETA began the year with a number
of multiple-year contracts and signed two more such contracts in
1999.  Approximately 45% of the business for Fiscal 1999
represents multiple-year contracts.  The net effect of the new
contracts is that BETA's business grew to $1,395,463 in Fiscal
1999, or 97%, from $709,022  in Fiscal 1998.

            Instructional revenues, through MLP, increased 11% for
Fiscal 1999.  In late Fiscal 1999, the Company shifted to a new
sales organization, namely, independent representatives who are
currently selling supplemental materials on behalf of MLP.

            The educational delivery division contributed
$5,297,127 to the Company's revenue  stream, constituting 43% of
the Company's revenue for the year.  There is no comparable year-
to-year period as the acquisition of Mildred Elley occurred on
November 2, 1998.

            COST OF GOODS SOLD.  Cost of goods sold increased to
            ------------------
$4,469,746 in Fiscal 1999, or 131%, compared to $1,935,104 in
Fiscal 1998.  Cost of goods sold now represents 36% of revenues
versus 31% in Fiscal 1998.  Cost of goods sold as a percentage
increased due to significant volume increases in our lower margin
businesses (BETA and Mildred Elley).

            GROSS PROFIT.  An increase of 95% in gross revenues for
            ------------
the Company as a whole fueled a 79% increase in the Company's
gross profit, or from $4,382,010 in Fiscal 1998 to $7,846,500 in
Fiscal 1999.  Because of the aforementioned increase in cost of
goods sold, however, gross profit as a percentage of sales
decreased from 69% to 64%.

            SELLING EXPENSES.  Selling expenses in Fiscal 1999
            ----------------
increased by 57% to $2,505,934 from $1,596,462 in Fiscal 1998.
As a percentage of revenues, selling expenses were 20% in Fiscal
1999 versus 25% in Fiscal 1998.  This decrease in percentage is
attributable to the fact that the percentage marketing expense
for each of the custom test and the educational delivery
divisions is lower than that for the Company's proprietary
testing and instructional division.

            GENERAL AND ADMINISTRATIVE.  The Company's general and
            --------------------------
administrative expenses increased by 68% to $4,387,253 in Fiscal
1999 from $2,619,034 in Fiscal 1998.  As a percentage of sales,
general and administrative expenses decreased from 41% to 36%.
This decrease is the effect of greater efficiencies created by
revenue gains.

            INCOME FROM OPERATIONS.  Income from operations for
            ----------------------
Fiscal 1999 increased by 160%, to $953,313 in Fiscal 1999 from
$366,514 in Fiscal 1998.

            EBITDA.  Earnings before interest, taxes, depreciation,
            ------
and amortization were $1,922,811 in Fiscal 1999 versus $1,017,383
in Fiscal 1998, representing a 89% increase.  This increase is
attributable to the increase in revenues, which more than offsets
the increase in general and administrative expenses and cost of
goods sold associated with the Company's increased revenue base.
EBITDA was 16% of revenues for both Fiscal 1999 and Fiscal 1998.

            OTHER INCOME (EXPENSE).  Other income (expense)
            ----------------------
increased to ($695,360) for Fiscal 1999 versus ($206,307) for
Fiscal 1998.  The increase in other income (expense) was
primarily due to increased interest expense incurred in the
funding of Mildred Elley.  As management expected, however, this
increase was offset by the increase in earnings before interest
and taxes (EBIT) from the educational delivery division.
INCOME BEFORE TAXES.  The Company generated pre-tax
income of $257,953 in Fiscal 1999 versus $160,207 in Fiscal 1998,
representing a 61% improvement.  This increase is the result of
increased revenue gains.

            NET INCOME AND EARNINGS PER SHARE.  Net after-tax
            ---------------------------------
earnings were $180,757 for Fiscal 1999 versus $131,202 for Fiscal
1998, representing approximately a 38% increase for Fiscal 1999.
Earnings per share were $0.08 versus $0.06 in the prior year
(after giving effect to the reverse stock split in March 1999).

LIQUIDITY AND WORKING CAPITAL

            WORKING CAPITAL.  During Fiscal 2000, the Company
            ---------------
continued to utilize working capital in order to further grow
its business. At the end of Fiscal 2000, working capital was
$1,052,496, down from $3,079,573 at the beginning of Fiscal 2000.  The
$2,026,077 decline was primarily due to an increase in borrowings
on the Company's bank lines of credit, increased amounts of accounts
payable and accrued expenses outstanding as of October 31, 2000, and
a significantly lower EBITDA.  The ratio of current assets to
current liabilities was 1.3 to 1.0 at the end of Fiscal 2000.
Approximately 11% of the Company's current assets at the end of
Fiscal 2000 consisted of cash and short-term investments, while
accounts and tuition receivables, inventories and prepaid expenses
comprised the balance.

            CASH FLOW FROM OPERATING ACTIVITIES.  For Fiscal 2000,
            -----------------------------------
net cash flow from operating activities decreased by ($306,440), to
($360,955) from ($54,515) in Fiscal 1999.  The primary factor
contributing to this net cash outflow was a net increase in accounts
and tuition receivables aggregating ($700,413) offset by an increase
in accounts payable and accrued expenses in the amount of $358,921.

            CASH FLOWS FROM INVESTING ACTIVITIES.  For Fiscal 2000,
            ------------------------------------
the Company had a net cash outflow from investing activities of
($691,713) versus a net cash outflow of ($2,881,635) for Fiscal
1999. The net cash outflow for Fiscal 2000 was primarily the result
of investments made in test development ($564,700) while for Fiscal
1999 the net cash outflow was related to investments in test
development ($482,799) and the acquisition of a subsidiary ($1,939,648).

            CASH FLOWS FROM FINANCING ACTIVITIES.  For Fiscal 2000,
            ------------------------------------
the Company had a net cash inflow from financing activities of
$423,863 versus a net cash outflow of ($903,187) in Fiscal 1999.
The Fiscal 2000 net cash inflow was primarily attributable to
additional borrowings made on the Company's bank lines of credit in
the amount of $697,748 and repayments of long-term debt ($320,736),
while the net cash outflow in Fiscal 1999 was related almost solely
to repayments of long-term debt ($911,747).

SELECTED FINANCIAL DATA

            The following tables summarize certain financial data
for the Company for Fiscal 2000, 1999, and 1998, respectively.
See "Financial Statements" in Item 7 below.


                                           Fiscal Year Ended October 31,
                                    ------------------------------------------

                                        2000            1999           1998
                                    ------------------------------------------

INCOME STATEMENT DATA:

Operating revenues. . . . . . . . . $12,758,124     $12,316,246     $6,317,114

Net sales. . . . . . . . . . . . .   12,758,124      12,316,246      6,317,114

Gross profit. . . . . . . . . . . .   7,838,144       7,846,500      4,382,010

Income (loss) from operations. . .   (1,242,185)        953,313        366,514

Income (loss) before income taxes. . (1,974,608)        257,953        160,207

Net income (loss). . . . . . . . . . (1,165,638)        180,757        131,202

Earnings (loss) per share. . . . . .       (.48)            .08            .06


BALANCE SHEETS:

Current assets. . . . . . . . . . .  $4,764,468      $5,479,456     $7,106,418

Total assets. . . . . . . . . . . .  16,204,649      16,384,417     14,074,640

Long-term obligations. . . . . . .    6,212,302       7,134,674      6,267,198

Total liabilities. . . . . . . . .    9,923,274       9,534,557      7,548,800

Working capital. . . . . . . . . .    1,053,496       3,079,573      5,824,816

Stockholders' equity. . . . . . . .   6,281,375       6,849,860      6,525,840


CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

            Certain statements contained in this Report contain
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.  These are statements
that do not relate strictly to historical or current facts.  Such
forward-looking statements involve known and unknown risks and
uncertainties.  The Company's actual actions or results may
differ materially from those discussed in the forward-looking
statements.  These risk factors include, without limitation:

            . Rapid changes in (i) the technology used to administer
              standardized tests generally or market educational
              materials or (ii) in the policy considerations which
              determine which test will be administered;

            . Non-renewal of the Company's annual contract with the
              State of Connecticut;

            . The loss of any significant customer;

            . The ability of the Company to compete successfully with
              the other providers of standardized tests (see
              "Description of Business--Competition", above);

            . The ability of the Company to accommodate any changes
              in government regulation which may impact the
              marketability of its tests (see "Description of
              Business--Government Regulation", above);

            . The loss of the eligibility of the Mildred Elley
              Schools under Federal or state grant programs for
              tuition assistance, or the discontinuance of Federal or
              state grant programs for tuition assistance;

            . The loss of accreditation of the Mildred Elley schools;

            . The ability of the Company to secure additional
              financing as and when necessary;

            . The ability of the Company to retain the services of
              its key management, and to attract new members of the
              management team;

            . The ability of the Company to effect and retain
              appropriate patent, copyright and trademark protection
              of its products;

            . The ability of the Company to meet the continued
              listing requirements of Nasdaq;

            . Any decrease in the market for educational consulting
              services; and

            . Increased competition in the field of publishing.

            The Company undertakes no obligation to release
publicly any revisions to the forward-looking statements or to
reflect events or circumstances after the date of this Report.

ITEM 7. FINANCIAL STATEMENTS

            Financial information required by this item appears in
the pages marked F-1 through F-34 at the end of this Report and
are incorporated herein by reference as if fully set forth
herein.


               INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                     PAGE


      Independent Auditors' Report                                    F-2

      Consolidated Financial Statements:

         Consolidated Balance Sheets                                  F-3

         Consolidated Statements of Operations and
         Comprehensive Income                                         F-5

         Consolidated Statement of Changes in Stockholders' Equity    F-6

         Consolidated Statements of Cash Flows                        F-7


         Notes to Consolidated Financial Statements                   F-9

ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE

            None.

<PAGE>

                               PART III

ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
            PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

            As of January 15, 2001, the directors and executive
officers of the Company were as follows:



     Name              Age         Position
     ----              ---         --------

Michael D. Beck           54     Director; Vice President, TASA; and
                                 President, Chief Executive Officer, BETA

Steven R. Berger(1,2)     45     Director

Peter A. Duhamel          55     Chief Operating Officer, TASA and
                                 MLP; Vice President, TASA

Joseph A. Fernandez(1,2)  65     Director

Andrew L. Simon           58     Chairman of the Board of Directors;
                                 President and Chief Executive
                                 Officer, TASA

Denise M. Stefano         37     Chief Financial Officer


Linda G. Straley          44     Director; Vice President, and Secretary, TASA

Thomas G. Struzzieri      42     Director

Faith Takes               46     Executive Vice President, TESC;
                                 President and Chief Executive Officer, MESI

David L. Warnock(1,2)     43     Director

_____________________________
(1)	Member of the Audit Committee
(2)	Member  of the Compensation Committee.



            Each director shall hold office until the earlier of
the next annual meeting of the Company's stockholders or his or
her resignation and until a successor is selected and qualified.

            MICHAEL D. BECK was elected as a Director of the
Company in March 1997 and has been Vice President of the Company
since January 1997.  Mr. Beck is also a Director and President
and Chief Executive Officer of BETA and is a Director of MLP.
Since 1983, Mr. Beck has been President of BETA, which provides
consulting and contractual services to school districts, state
education departments and test and textbook publishers.  As of
January 2, 1997, BETA became a wholly-owned subsidiary of the
Company and Mr. Beck continues to serve as the President of BETA.
See "Certain Relationships and Related Transactions" in Item 12,
below.  Mr. Beck has also provided consulting services on matters
of educational research and assessment for various military,
governmental and commercial organizations.  Mr. Beck received an
A.B. from John Carroll University and an M.A. from Fordham
University.

            STEVEN R. BERGER was elected as a Director of the
Company in March 1996 and he also serves on each of the Company's
Compensation and Audit Committees.  Mr. Berger has been a partner
in the law firm of Salans Hertzfeld Heilbronn Christy & Viener
(formerly Christy & Viener) in New York City since January 1989.
Mr. Berger received an A.B. and a J.D. from Harvard University.
Salans Hertzfeld Heilbronn Christy & Viener has acted as special
securities counsel to the Company since January 1995.

            PETER DUHAMEL joined the Company as the Chief Operating
Officer of TASA and MLP and a Vice President of the Company in
January 2000.  Before joining the Company, Mr. Duhamel was the
National Sales Manager for Prentice Hall Regents/Cambridge in
Upper Saddle River, New Jersey, from July 1997 until December
1999, and as such was responsible for the sales of all Cambridge
and Prentice Hall Regents products to the kindergarten through
the adult/academic and GED markets through all lines of
distribution.  From January 1991 until June 1997, Mr. Duhamel was
the General Manager of Sales and Marketing for the Troll School
and Library in Mahwah, New Jersey, during which time Mr. Duhamel
was responsible for the sales and marketing of Troll School and
Library products to the educational market place.  Mr. Duhamel
received a B.S. from Western New England College.

            JOSEPH A. FERNANDEZ was elected as a Director of the
Company in December 1998 and, since that date, he has also served
on each of the Company's Audit and Compensation Committees.  Dr.
Fernandez is also a director of BETA and TESC.  Dr. Fernandez is
President of Joseph A. Fernandez & Associates, Inc., an education
consulting firm.  From June 1993 until June 1996, Dr. Fernandez
served as President and Chief Executive Officer of School
Improvement Services, Inc., an organization in Winter Park,
Florida which provides consulting services related to school
improvement at the state, district or school level.  From June
1993 until July 1994, Dr. Fernandez also served as the President
of the Council of Great City Schools, a Washington, D.C. based
organization representing fifty of the largest urban school
districts in the United States.  Prior to assuming such positions
in 1993, Dr. Fernandez served as Chancellor of the New York City
Public Schools from 1990 to 1993 and as Superintendent of the
Dade County Public Schools in Miami, Florida from 1987 to 1990.
Dr. Fernandez also serves on the Board of Directors of Children's
Comprehensive Services, Inc.  Dr. Fernandez holds a B.A. from the
University of Miami, a M.A. in Education from Florida Atlantic
University and an Ed.D. from Nova University.

            ANDREW L. SIMON was elected as Director and as
President and Chief Financial Officer of the Company in March
1995.  Mr. Simon is also a Director of MLP, a Director and
President and Treasurer of TESC, a Director and Treasurer of MESI
and a Director and Secretary of BETA.  He served as Interim
President of TASA from June 1994 through March 1995.  He was a
founder of the Company and previously served as a Director from
1976 to 1991 and has acted as a financial consultant to the
Company since its inception in 1976.  From 1983 to 1986, he was a
Vice President/Marketing Division Head in the Private Clients
Group at Bankers Trust Company.  He was a Vice President at
Citibank, NA, where he held a number of senior marketing and
sales positions, from 1980 to 1983.  Prior to 1980, Mr. Simon
served as Marketing Director for several consumer package goods
companies including Norcliff-Thayer and Lederle Laboratories.  He
holds an M.B.A. from Columbia University and a B.A. from
Washington University.  Mr. Simon is on The George Washington
University National Council for Education and Human Development.

            DENISE M. STEFANO has been Chief Financial Officer of
the Company since May 1999.  Prior to joining the Company, Ms.
Stefano was the corporate controller at Empire Office, Inc. in
New York, New York, from April 1998 until May 1999, and the
assistant controller from March 1990 until June 1995.  During her
tenure at Empire Office, Inc., Ms. Stefano was responsible for
all corporate accounting and financial activities of the company.
In the interim, from June 1995 until April 1998, Ms. Stefano was
a Senior Auditor and Business Advisor with Arthur Andersen &
Company, LLP in New York, New York, where Ms. Stefano planned and
organized audit activities and performed external audits.  Ms.
Stefano received a Bachelor of Business Administration in
Accounting from Iona College and is currently pursuing an MBA
degree in finance at Iona College.  Ms. Stefano is a certified
public accountant in New York State.

            LINDA G. STRALEY was elected as a Director of the
Company and has been Vice President since June 1994.  From June
1994 through March 1995, she was Chairman of the Board of
Directors.  She has been Secretary since August 1992 and,
from 1984 to 1994, she served as director of DRP Services
for the Company.  Ms. Straley is also a Director of MESI and a
Director and Secretary of TESC.  Ms. Straley received a B.A. in
Education from Bethany College and an M.S. in Educational
Psychology and Statistics from the State University of New York.

            THOMAS STRUZZIERI was elected a director of the Company
in June 2000.  Mr. Struzzieri is the owner of HITS, a special
events production company.  HITS currently produces major
equestrian circuits in California, Florida, Virginia, New York,
Arizona, and Nevada.  He is a director of the American Horse
Shows Association and President of the National Hunter Jumper
Council.  He is on the Board of Directors of the United Way of
Dutchess County, the Rhinebeck Center for Performing Arts, the
Bardavon Opera House, the Boy Scouts of American of Dutchess
County and the Astor Home for Children.  Mr. Struzzieri is also a
trustee of Vassar Hospital and a member of the Business and
Community Leaders' Advisory Committee of the Institute of
Ecosystems Studies.  He attended Vassar College.

            FAITH TAKES has been the Executive Vice President of
TASA Educational Services Corp. and President and Chief Executive
Officer of MESI since November 1998.  Ms. Takes is also a
Director of each of TESC and MESI.  From 1985 until she joined
the Company, Ms. Takes was President, Chief Executive Officer and
owner of the Mildred Elley Schools, Inc., during which time Ms.
Takes ran every aspect of the Mildred Elley Schools.  During this
time, Ms. Takes also had management contracts with the
Kelley/Kensington Business Institutes, Worldwide Educational
Services, Inc., Central City Business Institute and Drake
Business Institutes.  Ms. Takes is past president of the New York
State Registered Business School Association.  Ms. Takes received
her B.S. from the State University of New York at Albany.

            DAVID L. WARNOCK was elected as a Director of the
Company in October 1998 and, since that time, he has also served
on each of the Company's Audit and Compensation Committees.  Mr.
Warnock is also a Director of TESC.  Mr. Warnock is a founding
partner of Cahill, Warnock & Company, LLC, an asset management
firm established in 1995 to invest in small public companies.
From 1983 to 1995, Mr. Warnock was with T. Rowe Price Associates
in senior management positions, including President of the
corporate general partner of T. Rowe Price Strategic Partners I
and T. Rowe Price Strategic Partners II, and as the Executive
Vice President of T. Rowe Price New Horizons fund.  Mr. Warnock
also serves on the Boards of Directors of Children's
Comprehensive Services, Inc., Concorde Career Colleges, Inc.,
Environmental Safeguards, Inc., and The School Company.  Mr.
Warnock received a B.A. in History from the University of
Delaware and a Masters in Finance from the University of
Wisconsin.

ITEM 10. EXECUTIVE COMPENSATION

            The following table shows compensation for services
rendered to the Company during Fiscal 2000, 1999, and 1998,
respectively, by the Chief Executive Officer, the President of
BETA, the Chief Operating Officer of TASA and MLP, the Chief
Financial Officer, and the Executive Vice President of TESC.
Each executive officer serves under the authority of the Board of
Directors. No other executive officer of the Company received
cash compensation that exceeded $100,000 during Fiscal 2000.
Therefore, pursuant to Item 402 of Regulation S-B, only
compensation for each of the Chief Executive Officer, the
President of BETA, the Chief Operating Officer of TASA and MLP,
the Chief Financial Officer, and the Executive Vice President of
TESC is shown in the Summary Compensation Table below.



<TABLE>
<CAPTION>
                    SUMMARY COMPENSATION TABLE


                                     Annual Compensation                       Long-Term Compensation
                                     ------------------------------------------------------------------
                                                                             Awards             Payouts
                                                                             --------------------------

                                                                                       Securities            All Other
                                                          Other Annual  Restricted      Underlying     LTIP    Compen-
 Name and Principal                                       Compensation    Stock       Options/SARs(1) Payouts  sation
     Position                Year    Salary($)   Bonus($)      ($)      Award(s)($)        (#)          ($)      ($)
----------------------------------------------------------------------------------------------------------------------
<S>                       <C>     <C>         <C>       <C>             <C>       <C>                <C>       <C>
Andrew L. Simon,             2000     $212,500     0       $35,350(2)        0          20,000/0         0        0
President, Chief             1999     $200,000     0       $35,473(2)        0          21,875/0         0        0
Executive Officer            1998     $180,000     0       $41,663(2)        0          19,625/0         0        0
-------------------------------------------------------------------------------

Michael D. Beck,             2000     $150,000   $20,608   $30,702(3)        0          12,000/0         0        0
Vice President,              1999     $120,000   $26,811   $32,864(3)        0          13,750/0         0        0
TASA; President              1998     $110,000    $5,000   $32,864(3)        0          13,750/0         0        0
and Chief
Executive
Officer, BETA
-------------------------------------------------------------------------------

Peter A. Duhamel,            2000     $122,260         0   $20,201(4)        0          40,000/0         0        0
Chief Operating              1999            0         0         0           0               0/0         0        0
Officer, TASA/MLP            1998            0         0         0           0               0/0         0        0
-------------------------------------------------------------------------------

Denise M. Stefano,           2000     $110,000         0   $14,842(5)        0           5,000/0         0        0
Chief Financial              1999      $50,000         0    $1,341(5)        0          15,000/0         0        0
Officer                      1998            0         0         0           0               0/0         0        0
-------------------------------------------------------------------------------

Faith Takes,                 2000     $150,000         0   $10,979(6)        0          10,000/0         0        0
Executive Vice               1999     $150,000   $33,990   $10,700(6)        0          37,500/0         0        0
President, TESC;             1998            0         0         0           0               0/0         0        0
President and
Chief Executive
Officer, MESI
-------------------------------------------------------------------------------

<FN>
(1) To date, the Company has issued no SARs.
(2) Includes: contributions of $17,000 to the Company's Money
    Purchase Pension Plan (the "Pension Plan") in Fiscal 2000; and
    $16,000 in Fiscal 2000, $16,000 in Fiscal 1999, and $24,000 in
    Fiscal 1998 to the Company's qualified 401(k) Profit Sharing
    Plan (the "401(k)") and Pension Plan; and $9,882, $10,167,
    and $8,250 for a company car in Fiscal 2000, 1999 and 1998
    respectively.
(3) Includes: a contributions of $17,000 to the Company's Pension
    Plan in Fiscal 2000; and $12,000 in Fiscal 1999, and $17,250
    in Fiscal 1998 to the Company's 401(k) and Pension Plan; and
    $6,234, $7,176 and 7,176 for a company car in Fiscal 2000,
    1999 and 1998, respectively.
(4) Includes: a contribution of $12,226 to the Company's Pension
    Plan in Fiscal 2000 and $4,995 for a company car in Fiscal
    2000;
(5) Includes: a contribution of $11,000 to the Company's Pension
    Plan in Fiscal 2000 and $840 for a company car in Fiscal 2000
(6) Includes: $8,412 for a company car in Fiscal 2000 and $7,200
    in Fiscal 1999.

</FN>
</TABLE>


EMPLOYMENT CONTRACTS

            On March 1, 1996, the Company entered into an
employment agreement with each of Andrew L. Simon and Linda G.
Straley, pursuant to which the Company agreed to employ Mr. Simon,
Ms. Straley and Mr. Ivens, and each of Mr. Simon and Ms. Straley
agreed to remain, as the Company's President and Chief Executive
Officer, and Vice President, respectively, for a term of three
years, subject to automatic yearly extensions and certain rights
of termination as provided in each such agreement.

            As of January 2, 1997, the Company entered into an
employment agreement with Michael D. Beck, pursuant to which the
Company agreed to employ Mr. Beck, and Mr. Beck agreed to remain,
as Vice President of TASA and President and Chief Executive
Officer of BETA, for a term of three years, subject to automatic
yearly extensions and certain rights of termination as provided
in such agreement.

            In the employment agreements with each of Messrs.
Simon and Beck and Ms. Straley, the Company has agreed to
provide for certain benefits and protections for such executive
officers in connection with a change of control of the Company.
Such agreements provide that upon the occurrence of a change of
control (as defined in each agreement), such executive's
employment agreement would continue until the earlier of three
years from the date of such change of control or the date all of
the Company's obligations under the employment agreement are
satisfied.  In addition, in the event of a change of control,
each executive officer would be awarded for each fiscal year
during the employment term, an annual bonus in cash at least
equal to the average annual bonus payable to such executive in
respect of two of the last three fiscal years immediately
preceding the date of the change of control in which bonuses paid
were higher.  In addition, Mr. Beck's employment agreement
provides that, in the event of a change of control, he would be
entitled to receive a bonus equal to the average annual bonus
payable to Mr. Beck from the Company in respect of two of the
last three fiscal years immediately preceding the date of any
change of control in which the bonuses paid were higher.

            In November 1998, the Company, through MESI, acquired
substantially all of the assets of Mildred Elley.  MESI entered
into an employment agreement with Faith Takes, pursuant to which
Ms. Takes agreed to remain as the President and Chief Executive
Officer of MESI and to become the Executive Vice President of
TESC, a wholly-owned subsidiary of the Company and the parent
company of MESI.  Ms. Takes' employment agreement has a term of
three years, subject to automatic yearly extensions and certain
rights of termination as provided in such agreement.  The
employment agreement contains a non-competition clause for two
years following termination of the executive's employment.

            On March 26, 1999, the Company entered into an
employment agreement with Denise M. Stefano, pursuant to which,
effective as of May 3, 1999, the Company agreed to employ Ms.
Stefano, and Ms. Stefano agreed to remain, as the Chief Financial
Officer of TASA, for an initial term of one year.  In February,
2000, the Company renewed the employment contract with Ms.
Stefano for a three-year term, subject to automatic yearly
extensions and certain rights of termination as provided in such
agreement.  The agreement contains a non-competition clause for
one year following termination of the executive's employment.

            On December 1, 1999, the Company entered into an
employment agreement with Peter Duhamel, pursuant to which,
effective as of January 10, 2000, the Company agreed to employ
Mr. Duhamel, and Mr. Duhamel agreed to remain, as the Chief
Operating Officer of TASA and MLP and as a Vice President of
TASA for an initial term of one year, subject to automatic yearly
extensions and certain rights of termination as provided in such
agreement.  The agreement contains a non-competition clause for
one year following termination of the executive's employment.

            Generally, each employee of the Company has agreed to
the assignment to the Company of the employee's rights to any
inventions relating to the Company's business or interest which
were conceived both prior to and during the period of employment
and, except under certain specified conditions, the Company's
employees are prohibited from competing for one year with the
Company in areas in which he or she was employed.

STOCK INCENTIVE PLAN

            The Board of Directors of the Company adopted the 1991
Stock Option Incentive Plan (the "Option Plan") on August 25,
1991 in order to attract and retain qualified personnel, which
Option Plan was approved by the stockholders on August 25, 1991.
The Board of Directors adopted the Amended and Restated 1991
Stock Option Incentive Plan (the "Amended Option Plan") in
February 1996, which Amended Option Plan amended and restated the
Option Plan and was approved by the stockholders of the Company
on March 29, 1996.  Under the Amended Option Plan, options to
purchase up to 625,000 shares of Common Stock may be granted to
employees, officers, directors and consultants of the Company.
The Amended Option Plan terminates in 2001, after which no
further options or stock awards may be issued under the Amended
Option Plan; all options and other stock awards outstanding under
the Amended Option Plan at the termination date shall continue to
be outstanding and may be exercised in accordance with their
respective terms, until such options or other stock awards expire
by their terms.

            The Board of Directors of the Company adopted the 2000
Stock Incentive Plan (the "2000 Plan") in February, 2000. The
stockholders of the Company approved the 2000 Plan at the
Company's Annual Meeting of Stockholders held on March 31, 2000.
Under the 2000 Incentive Plan, options or other stock awards with
respect to up to 300,000 shares of the Company's Common Stock
may be granted to employees, officers, directors and consultants
of the Company.  As of the date of this report, no options or
other stock awards have been issued under the 2000 Plan.  The
terms of the 2000 Plan are substantially identical to the terms
of the Amended Option Plan, except for provisions with respect to
the number of shares which may be issued under the 2000 Plan and
the expiration date of the Plan.

            Each of the Amended Option Plan and the 2000 Plan
(collectively, the "Option Plans") is administered by the
Compensation Committee of the Board of Directors (the
"Committee"). Subject to the terms of the Option Plans, the
Committee is authorized to select optionees and determine the
number of shares covered by each option and certain of its other
terms.  The exercise price of stock options granted under the
Option Plans may not be less than the fair market value of the
Company's Common Stock on the date of the grant.  In general,
options become exercisable after the first anniversary of the
date of grant.  The period within which any stock option may be
exercised cannot exceed ten years from the date of grant.
Options held by a terminated employee expire three months after
termination except in the event of death, disability or
termination for cause.  No one participant may receive, in any
one fiscal year, awards under the Option Plans which would
entitle the Participant to receive more than 50,000 shares.

            In Fiscal 1998, the Company granted a total of 90,875
options under the Amended Option Plan; in Fiscal 1999, the
Company granted a total of 125,625 options under the Amended
Option Plan; and in Fiscal 2000, the Company granted a total of
113,275 options under the Amended Plan.  In Fiscal 1998, 29,225
options under the Amended Option Plan were canceled; in Fiscal
1999, 45,500 options under the Amended Option Plan were canceled;
and in Fiscal 2000, 76,350 options under the Amended Option Plan
were canceled.  As of October 31, 2000, there were 498,038
options in the aggregate outstanding under the Amended Option
Plan.


<TABLE>
<CAPTION>
                   OPTION/SAR GRANTS IN LAST FISCAL YEAR

                                         Individual Grants
----------------------------------------------------------------------------------------------------------------
                            Number of Securities          Percent of Total        Exercise or
                         Underlying Options/SARs(1)   Options/SARs Granted to     Base Price
Name                            Granted (#)           Employees in Fiscal Year(4)   ($/Sh)       Expiration Date
----------------------------------------------------------------------------------------------------------------

<S>                         <C>                          <C>                    <C>          <C>
Andrew L. Simon,                 20,000(2)                    15.9%                 $1.668      February 7, 2010
President, Chief
Executive Officer
----------------------------------------------------------------------------------------------------------------

Michael D. Beck, Vice            12,000(2)                     9.5%                 $1.668      February 7, 2010
President, TASA;
President and Chief
Executive Officer, BETA
----------------------------------------------------------------------------------------------------------------

Peter A. Duhamel,                40,000(3)                    31.8%                 $2.125      January 10, 2010
Chief Operating
Officer, TASA/MLP
----------------------------------------------------------------------------------------------------------------

Denise M. Stefano,                5,000(2)                     4.0%                 $1.668      February 7, 2010
Chief Financial
Officer
----------------------------------------------------------------------------------------------------------------

Faith Takes, Executive           10,000(2)                     8.0%                 $1.668      January 10, 2010
Vice President, TESC;
President and Chief
Executive Officer,
MESI
----------------------------------------------------------------------------------------------------------------

<FN>

(1) To date, the Company has issued no SARs.
(2) These options become exercisable on February 7, 2001.
(3) These options became exercisable on January 10, 2001.
(4) Includes all options granted to employees and directors under
    the Amended Option Plan, the Directors Stock Option Plan and
    the Consultants Stock Incentive Plan in Fiscal 2000.


</FN>
</TABLE>




<TABLE>
<CAPTION>

           AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                       AND FY-END OPTION/SAR VALUES



                                                                     Number of            Value of
                                                                Securities Underlying    Unexercised
                                                                    Unexercised          In-the-Money
                                                                   Options/SARs(1)      Options/SARs(1)
                                                                   at FY-End (#)        at FY-End ($)
                                                                ---------------------------------------

                                 Shares Acquired      Value          Exercisable/        Exercisable/
Name                             on Exercise (#)   Realized ($)     Unexercisable       Unexercisable
-----------------------------------------------------------------------------------------------------------
<S>                                <C>            <C>             <C>                <C>
Andrew L. Simon,                        0              0             121,875/20,000          (2)
President, Chief
Executive Officer
----------------------------------------------------------------------------------------------------------------

Michael D. Beck, Vice                   0              0              58,750/12,000          (2)
President, TASA;
President and Chief
Executive Officer,
BETA
----------------------------------------------------------------------------------------------------------------

Peter Duhamel, Chief                    0              0                   40,000/0          (2)
Operating Officer,
TASA/MLP
----------------------------------------------------------------------------------------------------------------

Denise M. Stefano,                      0              0               15,000/5,000          (2)
Chief Financial
Officer
----------------------------------------------------------------------------------------------------------------

Faith Takes, Executive                  0              0              37,500/10,000          (2)
Vice President, TESC;
President and Chief
Executive Officer,
MESI
----------------------------------------------------------------------------------------------------------------

<FN>

(1) To date, the Company has issued no SARs.
(2) Based on the closing price of the Company's Common Stock on
    NASDAQ on October 31, 2000, or $0.938, none of the options
    held by these officers was "in the money".

</FN>
</TABLE>

DIRECTORS COMPENSATION

            The Board of Directors of the Company adopted the
Directors Plan in February 1996 in order to aid the Company in
attracting, retaining and motivating independent directors, which
Directors Plan was approved by the stockholders of the Company on
March 29, 1996.  The Directors Plan initially authorized awards
up to an aggregate of 25,000 shares of Common Stock.  In February
2000, the Board of Directors approved an amendment to the
Directors Plan increasing to 75,000 the number of shares which
may be the subject of stock options under the Directors Plan.
The stockholders of the Company approved such amendment at the
Annual Meeting of Stockholders on March 31, 2000.  Under the
Directors Plan, non-qualified stock options to purchase up to
75,000 shares of Common Stock may be granted to non-employee
directors of the Company, which options are granted automatically
at the times and in the manner stated in the Directors Plan.

            Subject to the terms of the Directors Plan, each non-
employee director receives 5,000 options on the day he (she)
first is elected to the Board of Directors, and 2,500 options on
the date of each annual meeting of the stockholders of the
Company, provided he (she) is re-elected to the Board of
Directors.  The exercise price of stock options granted under the
Directors Plan is the fair market value of the Company's Common
Stock on the date of grant.  The options become exercisable after
the first anniversary of the date of grant and the term of the
option cannot exceed ten years.  After giving effect to the one-
for-four reverse stock split in March 1999, on March 27, 1998,
the Company granted 1,250 options; on October 28, 1998, the
Company granted 1,250 options; on December 15, 1998, the Company
granted 1,250 options; and on March 4, 1999, the Company granted
1,875 options.  On March 31, 2000, the Company granted 7,500
options, and on June 7, 2000, the Company granted 5,000 options
under the Directors Plan.

            Directors receive no compensation, other than the
options pursuant to the Directors Plan, for services in such
capacity.

OTHER PLANS

            CONSULTANTS STOCK INCENTIVE PLAN.  In March 1997, the
Board of Directors of the Company adopted the Consultants Plan,
pursuant to which options to purchase up to 50,000 shares of
Common Stock may be granted to consultants to the Company. The
Consultants Plan is administered by the Board of Directors of the
Company.  Subject to the terms of the Consultants Plan, the Board
is authorized to select optionees and determine the number of
shares covered by each option and certain of its other terms.  In
general, the exercise price of stock options granted under the
Consultants Plan is the fair market value of the Company's Common
Stock on the date of the grant, however, the Board has the
discretion to use another method of valuation if it determines
that such other valuation is warranted.  In general, options
become exercisable six months from the date of grant, although
the Board has discretion to set either longer or shorter vesting
periods.  The period within which any stock option may be
exercised cannot exceed ten years from the date of grant.  If a
consultant's association with the Company is terminated prior to
the end of its agreed term, all unexercised, deferred and unpaid
awards shall be canceled immediately, except in the event of the
Consultant's death or disability.  In Fiscal 1998, 27,500
options were granted under the Consultants Plan; in Fiscal 1999,
no options were granted under the Consultants Plan, and 35,000
options were canceled or forfeited; in Fiscal 2000 no options
were granted under the Consultants Plan.

            PROFIT SHARING PLAN. The Company has a qualified 401(k)
Profit Sharing Plan.  The 401(k) Plan allows eligible employees
to contribute up to 15 percent (15%) of income through Company
contributions and a salary reduction mechanism.  Company
contributions to the 401(k) Plan are optional and accrue at the
discretion of the Board of Directors.  For Fiscal 1998, the
Company made a contribution to profit sharing equal to five
percent (5%) of each eligible employee's compensation, thereby
limiting each eligible employee to contribute up to ten percent
(10%) of compensation.  In Fiscal 2000 and Fiscal 1999, the Board
of Directors of the Company elected not to make its customary
contribution of five percent (5%) of each eligible employee's
compensation in order to retain such amount for working capital;
accordingly, each eligible employee is permitted to contribute up
to fifteen percent (15%) of compensation.

            Net assets for the 401(k) Plan, as estimated by the
Massachusetts Mutual Life Insurance Company which maintains such
plan's records, were $1,794,313 and $1,684,666 at October 31,
2000 and 1999, respectively.

            MONEY PURCHASE PENSION PLAN.  In October 1991, the
Company adopted a Money Purchase Pension Plan, which has been
qualified by the Internal Revenue Service.  Under this Plan, the
Company makes an annual contribution to the Plan equal to ten
percent (10%) of each eligible employee's compensation.

            Net assets for the Money Purchase Pension Plan, as
estimated by the Massachusetts Mutual Life Insurance Company
which maintains such plan's records, were $944,366 and $964,539
at October 31, 2000 and 1999, respectively.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

            Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors, executive officers and persons
who own beneficially more than ten percent of the Company's
outstanding common stock to file with the SEC initial reports of
beneficial ownership and reports of changes in beneficial
ownership of common stock and other securities of the Company on
Forms 3, 4 and 5, and to furnish the Company with copies of all
such forms they file.  Based on a review of copies of such
reports received by the Company, all of the Company's directors
and officers timely filed all reports required with respect to
Fiscal 2000.

ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT

            The following table sets forth certain information
regarding the beneficial ownership of the Company's Common Stock,
as of January 17, 2001, by (i) each person who is known by the
Company to own beneficially more than 5% of the Company's
outstanding Common Stock; (ii) each of the Company's officers and
directors; and (iii) all officers and directors as a group.
As of January 17, 2001, there were 2,559,453 shares of
Common Stock outstanding.  Each share of Common Stock is entitled
to one vote per share.

            All of the shares of Common Stock owned by Messrs.
Simon and Ms. Straley, other than shares deemed to be owned
beneficially by such officers because they may be acquired
through the exercise of currently exercisable stock options, are
held in a voting trust (the "Voting Trust"), pursuant to a Voting
Trust Agreement, dated as of August 19, 1992, as amended.  Until
his death, Bertram L. Koslin had been sole Voting Trustee.
Julius Ostreicher, the attorney for the Estate of Bertram L.
Koslin, Andrew L. Simon, the Chairman of the Board of Directors
and the President of the Company, and Eileen West, a former
director of the Company, have been appointed as successor Voting
Trustees.  Because the Voting Trust has the sole and exclusive
power to exercise all voting rights with respect to the shares of
Common Stock deposited in the Voting Trust, the Voting Trust has
sole voting and dispositive power with respect to 273,593.5
shares of Common Stock.  Accordingly, the Voting Trust has the
power to exercise 273,593.5 votes, or 10.5% of all eligible
votes.



<PAGE>


                                                   Shares of        Percent of
Name and Address of                              Common Stock      Common Stock
Beneficial Owners and                            Beneficially      Beneficially
Directors and Officers                              Owned             Owned
-------------------------------------------------------------------------------
5% Beneficial Owners:
--------------------
Cahill, Warnock Strategic                         653,993(1,2)        23.4%
Partners Fund, L.P.
c/o Cahill, Warnock & Co., LLC
1 South Street, Suite 2150
Baltimore, MD 21202

-------------------------------------------------------------------------------

Voting Trust, u/a dated August                    255,863             10.0%
19, 1992, as amended, Julius
Ostreicher, Andrew L. Simon
and Eileen West, Voting
Trustees
c/o Touchstone Applied Science
Associates, Inc.
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------
[FN]
______________________

            1       Includes 258,268 shares that Cahill, Warnock
Strategic Partners Fund, L.P. (the "Fund") has the right to
acquire pursuant to currently exercisable warrants (the "Fund
Warrants").  Excludes (a) 21,927 shares and (b) 14,311 shares
which may be acquired pursuant to currently exercisable warrants
(the "Strategic Warrants") owned by Strategic Associates, L.P.,
an affiliate of the Fund, but as to which the Fund disclaims
beneficial ownership.  ("Strategic Associates"; together, with
the Fund, the "Cahill, Warnock Entities").  Pursuant to the
Investor Rights Agreement (the "Investor Rights Agreement")
between the Company and the Cahill, Warnock Entities, the Company
has agreed that so long as the Cahill, Warnock Entities own at
least 50% of the Fund Warrants and the Strategic Warrants (the
"Warrants") (or if the Warrants have been exercised, the shares
issuable pursuant thereto), the Cahill, Warnock Entities have the
right to nominate two directors to the Board of Directors of the
Company.  David L. Warnock and Joseph A. Fernandez are the two
current directors who were nominated by the Cahill, Warnock
Entities.  Pursuant to the Investor Rights Agreement, the
directors and executive officers of the Company have agreed, at
each meeting of stockholders for the purpose of electing
directors, to cast their eligible votes in favor of the nominees
of the Cahill, Warnock Entities.  In addition, for a period of 29
months from the closing date of the investment by the Cahill
Warnock Entities, at each meeting of stockholders for the purpose
of electing directors, the Cahill, Warnock Entities have agreed
to cast all of their eligible votes in favor of the directors
nominated by the Company.

            2       Edward L. Cahill  is a general partner of Cahill,
Warnock Strategic Partners, L.P. ("Cahill, Warnock Partners"),
the Fund's sole general partner.  David L. Warnock is also a
general partner of Cahill, Warnock Partners and is a director of
the Company (see footnote 13 to this table).  Messrs. Cahill and
Warnock are also the sole members of Cahill, Warnock & Company,
LLC, which is the sole general partner of Strategic Associates,
which holds the Strategic Warrant.



</FN>

                                                   Shares of        Percent of
Name and Address of                              Common Stock      Common Stock
Beneficial Owners and                            Beneficially      Beneficially
Directors and Officers                              Owned             Owned
-------------------------------------------------------------------------------
Officers and Directors:
-----------------------
Michael D. Beck                                   130,875(3)           4.9%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------

Steven R. Berger                                    3,800(4)           0.2%
620 Fifth Avenue
New York, NY 10020
-------------------------------------------------------------------------------

Peter Duhamel                                      40,000(5)           1.5%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------

Joseph A. Fernandez                                 3,400(6)           0.1%
4392 Live Oak Boulevard
Palm Harbor, FL 34685
-------------------------------------------------------------------------------

Andrew L. Simon                                   222,613(7)           8.2%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------

Denise M. Stefano                                  20,000(8)           0.8%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------

Linda G. Straley                                  102,944(9)           3.9%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------

Thomas Struzzieri                                          0(10)       - -
24 Closs Drive
Rhinebeck, NY  12472
-------------------------------------------------------------------------------

Faith Takes                                           47,500(11)       1.8%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------

David L. Warnock                                     656,493(12)      23.2%
1 South Street, Suite 2150
Baltimore, Maryland 21202
-------------------------------------------------------------------------------

Officers and Directors as a                        1,364,606(13)      42.4%
Group (10 persons)
------------------------------------------------------------------------------

[FN]
________________________
            3       Includes (i) 32,000 shares which are owned jointly
with Mr. Beck's wife, (ii) 9,375 shares owned by Mr. Beck's
daughter, and (iii) 70,750 shares which Mr. Beck has the right to
acquire upon the exercise of currently exercisable stock options
or options that will become exercisable within 60 days; excludes
9,375 shares owned by Mr. Beck's wife, as to which Mr. Beck
disclaims beneficial ownership.

            4       Includes 3,800 shares which Mr. Berger has the
right to acquire upon the exercise of currently exercisable stock
options or stock options which become exercisable within 60 days.
Excludes 2,500 shares that Mr. Berger has the right to acquire
upon the exercise of options granted to Mr. Berger which are not
currently exercisable.

            5       Includes 40,000 shares which are the subject of
options granted to Mr. Duhamel which are currently exercisable.

            6       Includes 2,500 shares which Mr. Fernandez has the
right to acquire upon the exercise of currently exercisable stock
options or stock options which become exercisable within 60 days.
Excludes 2,500 shares that Mr. Fernandez has the right to acquire
upon the exercise of options granted to Mr. Fernandez which are
not currently exercisable.

            7       Includes 141,875 shares which Mr. Simon has the
right to acquire upon the exercise of currently exercisable stock
options or stock options that will become exercisable within
60 days, and which options are not included in the Voting Trust;
excludes (i) 375 shares of Common Stock owned by the retirement
account of Mr. Simon's wife, as to which Mr. Simon disclaims
beneficial ownership, and (ii) the shares of Common Stock held in
the Voting Trust for the benefit of all of the members thereof,
which Voting Trust is listed separately as a 5% stockholder in
this table.  Mr. Simon is one of three Voting Trustees of the
Voting Trust.

            8       Includes 15,000 shares which are the subject of
options granted to Ms. Stefano which are currently exercisable
and 5,000 shares which are the subject of options granted to Ms.
Stefano which will become exercisable within the next 60 days.

            9       Includes 64,800 shares which Ms. Straley has the
right to acquire upon the exercise of currently exercisable stock
options or options that will become exercisable within 60 days.

           10.      Excludes 5,000 shares which are the subject of
options granted to Mr. Struzzieri which are not currently exercisable.

           11.      Includes 47,000 shares which Ms. Takes has the
right to acquire upon the exercise of currently exercisable stock
options or options which become exercisable within the next 60 days.

           12.      Includes (i) 2,500 shares which Mr. Warnock has
the right to acquire upon the exercise of currently exercisable stock
options or stock options which become exercisable within 60 days; (ii)
417,652 shares owned by the Cahill Warnock Entities, (iii) 258,268
shares which the Fund has the right to acquire pursuant to the Fund
Warrant; and (iv) 14,311 shares which Strategic Associates, has the
right to acquire pursuant to the Strategic Warrant (see footnotes 1
and 2 to this table). Excludes 2,400 shares which Mr. Warnock has the
right to acquire upon the exercise of options granted to Mr. Warnock
which are not currently exercisable.

           13.      Includes shares held in the Voting Trust for the
benefit of the Estate of Bertram L. Koslin, Eileen West and certain
employees of the Company. Andrew L. Simon, Chairman of the Board of
Directors and President of the Company, is one of three Voting Trustees
of the Voting Trust. Includes an aggregate of 651,993 shares which are
the subject of currently exercisable options and warrants which are held
or deemed held by officers and directors of the Company, but are not
included in the Voting Trust. Excludes an aggregate of 21,877 shares
which are the subject of options and warrants which are held or deemed
held by officers and directors of the Company which are not currently
exercisable and are not included in the Voting Trust.

</FN>


ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

            The Company is authorized to issue 5,000,000 shares,
par value $.0001 per share, of preferred stock. The stock may be
issued by the Board of Directors of the Company in one or more
series and with such preferences, conversion or other rights,
voting powers and other provisions as may be fixed by the Board
of Directors in the resolution authorizing its issuance without
any further action of the stockholders.

            In November 1998, the Company, through MESI, acquired
substantially all of the assets of Mildred Elley.  The Company
financed the acquisition through the issuance of the Debentures,
with the Warrants attached, pursuant to a Securities Purchase
Agreement (the "Securities Purchase Agreement"),  with the
Cahill, Warnock Entities.  Pursuant to the Securities Purchase
Agreement, the Company:  (i) issued and sold to the Cahill,
Warnock Entities 8% Debentures due 2003 (the "Debentures"), dated
October 28, 1998 (the "Purchase Closing Date"), in the aggregate
principal amount of $4,000,000, (ii) issued and sold to the
Cahill, Warnock Entities, as additional consideration for
purchasing the Debentures, the Warrants to acquire an aggregate
of 690,229.5 shares of the Company's Common Stock, which, on the
Purchase Closing Date, constituted 20% of the Company's issued
and outstanding common stock on a fully diluted basis, after
giving effect to the transactions contemplated in the Securities
Purchase Agreement and (iii) authorized the issuance and sale in
the future to the Cahill, Warnock Entities of additional shares
of the Company's Common Stock upon the Company's exercise of a
put option, the terms and conditions of which are set forth in
the Securities Purchase Agreement.  Of the Warrants issued, 80%
are immediately exercisable, and 20% will become exercisable 18
months after the Purchase Closing Date if the Company shall not
have repaid the Debentures in full by such date or upon the
occurrence of an Event of Default (as defined in the Securities
Purchase Agreement).  The exercise price of the Warrants upon
issuance was $1.40 per share of Common Stock, subject to certain
antidilution adjustments set forth in the Warrants.  On December
3, 1999, in exchange for the Cahill, Warnock Entities' consent,
among other things, to subordinate the Debentures to certain
financing the Company is seeking to obtain in connection with the
implementation of the Company's strategic plan and pursuant to a
Consent, Agreement and Amendment, dated as of December 3, 1999,
among the Company and the Cahill, Warnock Entities, the Board of
Directors of the Company approved a repricing of the Warrants to
an exercise price of $1.125 per share of Common Stock, subject to
the same antidilution adjustments referred to above.  Pursuant to
the Registration Rights Agreement between the Company and the
Cahill, Warnock Entities, the Company has agreed to register the
shares of Common Stock underlying the Warrants with the
Securities and Exchange Commission.

            Pursuant to the Investor Rights Agreement between the
Company and the Cahill, Warnock Entities, the Company has agreed
that so long as the Cahill, Warnock Entities own at least 50% of
the Warrants (or if the Warrants have been exercised, the shares
issuable pursuant thereto), the Cahill, Warnock Entities shall
have the right to nominate two directors to the Board of
Directors of the Company.  David L. Warnock and Joseph A.
Fernandez are the current directors who were nominated by the
Cahill, Warnock Entities.  Pursuant to the Investor Rights
Agreement, the directors and executive officers have agreed, at
each meeting of stockholders for the purpose of electing
directors, to cast their eligible votes in favor of the nominees
of the Cahill, Warnock Entities.  In addition, for a period of 29
months from the Purchase Closing Date, at each meeting of
stockholders for the purpose of electing directors, the Cahill,
Warnock Entities have agreed to cast all of their eligible votes
in favor of the directors nominated by the Company.

            As of January 2, 1997, the Company purchased all of the
outstanding capital stock of BETA from the holders of such shares
for a purchase price equal to (i) $130,000 in cash, (ii) $150,000
payable in promissory notes (the "Notes"), bearing interest at
the rate of 8.25% and maturing on January 2, 1999, and (iii)
150,000 shares of the Company's Common Stock.  The Notes were
paid in December 1998.  Michael D. Beck, Vice President and
Director of the Company and President and Chief Executive Officer
of BETA, Connie Beck, Mr. Beck's wife, and Amanda Beck, Mr.
Beck's daughter, were the shareholders of BETA at the time of its
acquisition.  Pursuant to the Stock Purchase Agreement, Mr. Beck
has the option to repurchase all of the outstanding capital stock
of BETA from the Company for a period of six years from the
Agreement Date, provided that Mr. Beck may not exercise the
option prior to the third anniversary of the Agreement Date
unless his employment with the Company and BETA is not renewed at
the expiration of the initial three-year term or has been
terminated for "cause" or "disability" or he leaves after a
change of control for "good reason" (as contemplated by his
employment agreement).  The option exercise price is subject to a
formula and varies based upon the reason for, and timing of,
exercise.

            In November 1998, the Company, through MESI, purchased
substantially all of the assets of Mildred Elley for an aggregate
purchase price of $3,000,000, paid as follows: (i) $2,000,000 in
cash at the closing and (ii) $1,000,000 by a five-year promissory
note of MESI, payable in equal quarterly installments of
principal and interest and bearing interest at a rate equal to
8.5% per annum. In addition, MESI assumed certain liabilities of
Mildred Elley related to the acquired business (the "Assumed
Liabilities").  The aggregate amount of the Assumed Liabilities
is approximately $1,000,000.  Simultaneous with the closing of
such purchase, MESI entered into an employment agreement with
Faith Takes, pursuant to which Ms. Takes agreed to remain as the
President and Chief Executive Officer of MESI and to become the
Executive Vice President of TESC, a wholly-owned subsidiary of
the Company and the parent company of MESI.

            One of the Company's directors, Steven R. Berger, is a
partner in Salans Hertzfeld Heilbronn Christy & Viener (formerly
Christy & Viener), which acts as special securities counsel to
the Company.  The Company paid legal fees of $88,081, $217,093,
and $143,375 to Salans Hertzfeld Heilbronn Christy & Viener for
Fiscal 2000, 1999, and 1998, respectively.

ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K

            (a)    The following Exhibits are filed as part of this Report:

                   3.1   Certificate of Incorporation, dated August
                         22, 1991 filed with the Secretary of State
                         of the State of Delaware (incorporated
                         herein by reference to the exhibit
                         contained in the Company's Quarterly Report
                         on Form 10-QSB for the fiscal quarter ended
                         January 31, 1999)

                   3.2   Certificate of Merger dated August 26,
                         1992, filed with the Secretary of State of
                         the State of Delaware (incorporated herein
                         by reference to the exhibit contained in
                         the Company's Registration Statement on
                         Form SB-2 under the Securities Act of 1933,
                         as amended, filed with the Securities and
                         Exchange Commission on July 7, 1993)

                   3.3   Certificate of Designations for Series A
                         Preferred Stock of the Company
                         (incorporated herein by reference to the
                         exhibit contained in the Company's
                         Registration Statement on Form SB-2 under
                         the Securities Act of 1933, as amended,
                         filed with the Securities and Exchange
                         Commission on July 7, 1993)

                   3.4   Certificate of Amendment of Certificate of
                         Incorporation dated March 4, 1999, filed
                         with the Secretary of State of the State of
                         Delaware (incorporated herein by reference
                         to the exhibit contained in the Company's
                         Quarterly Report on Form 10-QSB for the
                         fiscal quarter ended January 31, 1999)

                   3.5   Amended and Restated By-Laws (incorporated
                         by reference to the exhibit contained in
                         the Company's Registration Statement on
                         Form S-3 (File No. 333-27659) under the
                         Securities Act of 1933, as amended, filed
                         with the Securities and Exchange Commission
                         on May 22, 1997)

                   4.1   Specimen Certificate evidencing shares of
                         Common Stock (incorporated herein by
                         reference to the exhibit contained in the
                         Company's Registration Statement on Form S-
                         3 (File No. 333-75377) under the Securities
                         Act of 1933, as amended, filed with the
                         Securities and Exchange Commission on March
                         31, 1999)

                   4.2   Form of Warrant (incorporated by reference
                         to the exhibit contained in the Company's
                         Registration Statement on Form S-3 (File
                         No. 333-27659) under the Securities Act of
                         1933, as amended, filed with the Securities
                         and Exchange Commission on May 22, 1997)

                   4.3   Investor Rights Agreement, dated as of
                         September 4, 1998, by and among the
                         Company, Cahill Warnock Strategic Partners
                         Fund, L.P., Strategic Associates, L.P., and
                         the Individual Shareholders Named Therein
                         (incorporated by reference to the exhibit
                         contained in the Company's Current Report
                         on Form 8-K, which was filed with the
                         Securities and Exchange Commission on
                         November 23, 1998 (the "November 1998 8-
                         K"))

                   4.4   Registration Rights Agreement, dated as of
                         September 4, 1998, by and among the
                         Company, Cahill, Warnock Strategic Partners
                         Fund, L.P., and Strategic Associates, L.P.
                         (incorporated by reference to the exhibit
                         contained in the November 1998 8-K)

                   4.5   Form of 8% Subordinated Debenture
                         (incorporated by reference to the exhibit
                         contained in the November 1998 8-K)

                   4.6   Form of Warrant issued in connection with
                         the Securities Purchase Agreement by and
                         between the Company, Cahill, Warnock
                         Strategic Partners Fund, L.P. and Strategic
                         Associates, L.P. (incorporated by reference
                         to the exhibit contained in the November
                         1998 8-K)

                   4.7   Form of Warrant issued in connection with
                         (i) the Agreement, dated as of August 19,
                         1997, among Comprehensive Capital, Theodore
                         P. Allocca, Theodore Allocca and Steven
                         Kevorkian and the Company, and (ii) the
                         Agreement dated as of August 19, 1997,
                         between the Company and Barry M. Goldstein
                         (incorporated herein by reference to the
                         exhibit contained in the Company's
                         Registration Statement on Form S-3 (File
                         No. 333-75377) under the Securities Act of
                         1933, as amended, filed with the Securities
                         and Exchange Commission on March 31, 1999)

                   4.8   Amendment No. 1 to the Securities Purchase
                         Agreement, dated as of March 8, 1999, among
                         the Company, Cahill, Warnock Strategic
                         Partners Fund, L.P. and Strategic
                         Associates, L.P. (incorporated by reference
                         to the exhibit contained in the Company's
                         Annual Report on Form 10-KSB for the fiscal
                         year ended October 31, 1999)

                   4.9   Consent, Agreement and Amendment, dated as
                         of December 3, 1999, by and among the
                         Company, Cahill, Warnock Strategic Partners
                         Fund, L.P. and Strategic Associates, L.P.
                         (incorporated by reference to the exhibit
                         contained in the Company's Annual Report on
                         Form 10-KSB for the fiscal year ended
                         October 31, 1999).

                   9.1   Voting Trust Agreement, dated August 19,
                         1992 (incorporated herein by reference to
                         the exhibit contained in Amendment No. 1 to
                         the Company's Registration Statement on
                         Form SB-2 under the Securities Act of 1933,
                         as amended, filed with the Securities and
                         Exchange Commission on March 16, 1994)

                   9.2   Amendment of Voting Trust Agreement and
                         Appointment of Successor Trustee, dated
                         March 30, 1995 (incorporated herein by
                         reference to the exhibit contained in
                         Amendment No. 1 to the Company's
                         Registration Statement on Form SB-2 under
                         the Securities Act of 1933, as amended,
                         filed with the Securities and Exchange
                         Commission on March 16, 1994)

                   10.1  Lease Agreement between the Town of
                         Southeast Industrial Development
                         Agency/Industrial Development Reserve Bonds
                         and the Company;  Mortgage and Security
                         Agreement between the Company and the Town
                         of Southeast Industrial Development Agency
                         to Barclays Bank of New York, N.A., now The
                         Bank of New York, as mortgagee; Note
                         between the Company and Barclays Bank of
                         New York, N.A., now The Bank of New York;
                         Lease Guarantee Agreement from the Company
                         as guarantor and Barclays Bank of New York,
                         N.A., now The Bank of New York, as Trustee;
                         Amendment to Lease between the Town of
                         Southeast Industrial Development Agency and
                         the Company (incorporated herein by
                         reference to the exhibit contained in the
                         Company's Registration Statement on Form
                         SB-2 under the Securities Act of 1933, as
                         amended, filed with the Securities and
                         Exchange Commission on July 7, 1993)

                   10.2  Extension and Modification Agreement, dated
                         as of October 31, 1996, between the Company
                         and the Town of Southeast Industrial
                         Development Agency, and the Bank of New
                         York (incorporated herein by reference to
                         the exhibit contained in the Company's
                         Annual Report on Form 10-KSB for the fiscal
                         year ended October 31, 1996)

                   10.3  Agreement between the Company and the State
                         of Connecticut (incorporated herein by
                         reference to the exhibit contained in the
                         Company's Registration Statement on Form
                         SB-2 under the Securities Act of 1933, as
                         amended, filed with the Securities and
                         Exchange Commission on July 7, 1993)

                   10.4  401(k) Plan (incorporated herein by
                         reference to the exhibit contained in the
                         Company's Registration Statement on Form
                         SB-2 under the Securities Act of 1933, as
                         amended, filed with the Securities and
                         Exchange Commission on July 7, 1993)

                   10.5  Patent Assignment by Bertram Koslin to the
                         Company (incorporated herein by reference
                         to the exhibit contained in the Company's
                         Registration Statement on Form SB-2 (File
                         No. 33-65766) under the Securities Act of
                         1933, as amended, filed with the Securities
                         and Exchange Commission on July 7, 1993)

                   10.6  Amended and Restated 1991 Stock Option
                         Incentive Plan (incorporated herein by
                         reference to the exhibit contained in the
                         Company's Quarterly Report on Form 10-QSB
                         for the fiscal quarter ended April 30,
                         1996)

                   10.7  Directors Stock Option Plan (incorporated
                         herein by reference to the exhibit
                         contained in the Company's Quarterly Report
                         on Form 10-QSB for the fiscal quarter ended
                         April 30, 1996)

                   10.8  2000 Stock Incentive Plan (filed herewith)

                   10.9  Employment Agreement with Andrew L. Simon
                         (incorporated herein by reference to the
                         exhibit contained in the Company's
                         Quarterly Report on Form 10-QSB for the
                         fiscal quarter ended April 30, 1996)

                   10.10 Employment Agreement with Linda G. Straley
                         (incorporated herein by reference to the
                         exhibit contained in the Company's
                         Quarterly Report on Form 10-QSB for the
                         fiscal quarter ended April 30, 1996)

                   10.11 Stock Purchase Agreement, dated as of
                         January 2, 1997, between Beck Evaluation &
                         Testing Associates, Inc., Connie K. Beck,
                         Michael D. Beck, Amanda P. Beck and the
                         Company, together with all schedules and
                         exhibits thereto (incorporated by reference
                         to the exhibit contained in the Company's
                         Quarterly Report on Form 10-QSB for the
                         fiscal quarter ended January 31, 1997)

                   10.12 Employment Agreement, dated as of January
                         2, 1997, between the Company and Michael D.
                         Beck (incorporated by reference to the
                         exhibit contained in the Company's
                         Quarterly Report on Form 10-QSB for the
                         fiscal quarter ended January 31, 1997)

                   10.13 Assignment, Assumption and Sale Agreement,
                         dated as of December 30, 1996, between
                         Steck-Vaughn Company and the Company
                         (incorporated by reference to the exhibit
                         contained in the Company's Quarterly Report
                         on Form 10-QSB for the fiscal quarter ended
                         January 31, 1997)

                   10.14 Consultants Stock Incentive Plan
                         (incorporated by reference to the exhibit
                         contained in the Company's Quarterly Report
                         on Form 10-QSB for the fiscal quarter ended
                         April 30, 1997)

                   10.15 Asset Purchase Agreement, dated as of May
                         30, 1997, by and between Programs for
                         Education, Inc., Bernard B. Shapiro, Modern
                         Learning Press, Inc. and the Company
                         (incorporated by reference to the exhibit
                         contained in the Company's Current Report
                         on Form 8-K, which was filed with the
                         Securities and Exchange Commission on June
                         16, 1997)

                   10.16 Secured Promissory Note, dated May 30,
                         1997, of Modern Learning Press, Inc.
                         (incorporated by reference to the exhibit
                         contained in the Company's Current Report
                         on Form 8-K, which was filed with the
                         Securities and Exchange Commission on June
                         16, 1997)

                   10.17 Security Agreement, dated  May 30, 1997, by
                         and between Programs for Education, Inc.,
                         Bernard B. Shapiro and Modern Learning
                         Press, Inc. (incorporated by reference to
                         the exhibit contained in the Company's
                         Current Report on Form 8-K, which was filed
                         with the Securities and Exchange Commission
                         on June 16, 1997)

                   10.18 Stock Pledge Agreement with Escrow
                         Provisions, dated May 30, 1997, by and
                         among the Company, Programs for Education,
                         Inc. and Pluese, Lihotz, Incollingo & Leone
                         (incorporated by reference to the exhibit
                         contained in the Company's Current Report
                         on Form 8-K, which was filed with the
                         Securities and Exchange Commission on June
                         16, 1997)

                   10.19 Guaranty Agreement, dated May 30, 1997, by
                         the Company in favor of Programs for
                         Education, Inc. and Bernard B. Shapiro
                         (incorporated by reference to the exhibit
                         contained in the Company's Current Report
                         on Form 8-K, which was filed with the
                         Securities and Exchange Commission on June
                         16, 1997)

                   10.20 Royalty Agreement, dated May 30, 1997, by
                         and between Modern Learning Press, Inc. and
                         Bernard B. Shapiro (incorporated by
                         reference to the exhibit contained in the
                         Company's Current Report on Form 8-K, which
                         was filed with the Securities and Exchange
                         Commission on June 16, 1997)

                   10.21 Mortgage Modification and Extension
                         Agreement, dated as of August 28, 1997,
                         between MSB Bank and the Company
                         (incorporated by reference to the exhibit
                         contained in the Company's Annual Report on
                         Form 10-KSB for the fiscal year ended
                         October 31, 1997 ( the "1997 10-KSB")

                   10.22 Amended and Restated Mortgage Note, dated
                         August 28, 1997, of the Company in favor of
                         MSB Bank (incorporated by reference to the
                         exhibit contained in the 1997 form 10-KSB)

                   10.23 Term Loan Agreement, dated August 28, 1997,
                         between the Company and MSB Bank
                         (incorporated by reference to the exhibit
                         contained in the 1997 form 10-KSB)

                   10.24 Note, dated August 28, 1997, of the Company
                         in favor of MSB Bank (incorporated by
                         reference to the exhibit contained in the
                         1997 form 10-KSB)

                   10.25 Security Agreement between the Company and
                         MSB Bank (incorporated by reference to the
                         exhibit contained in the 1997 form 10-KSB)

                   10.26 Environmental Guaranty, dated August 28,
                         1997, of the Company (incorporated by
                         reference to the exhibit contained in the
                         1997 form 10-KSB)

                   10.27 Agreement, dated as of August 19, 1997,
                         among Comprehensive Capital, Theodore P.
                         Allocca, Theodore Allocca, Steven
                         Kevorkian, and the Company (incorporated by
                         reference to the exhibit contained in the
                         1997 form 10-KSB)

                   10.28 Asset Purchase Agreement, dated as of
                         November 2, 1998, between Mildred Elley
                         School, Inc. and MESI Acquisition Corp.
                         (incorporated by reference to the exhibit
                         contained in the November 1998 8-K)

                   10.29 Promissory Note of MESI Acquisition Corp.
                         (incorporated by reference to the exhibit
                         contained in the November 1998 8-K)

                   10.30 Guaranty of TASA with respect to Promissory
                         Note of MESI Acquisition Corp.
                         (incorporated by reference to the exhibit
                         contained in the November 1998 8-K)

                   10.31 Employment Agreement, dated as of November
                         2, 1998, by and among Mildred Elley School,
                         Inc. and Faith Takes (incorporated by
                         reference to the exhibit contained in the
                         November 1998 8-K)

                   10.32 Securities Purchase Agreement, dated as of
                         September 4, 1998, by and among the
                         Company, Cahill Warnock Strategic Partners
                         Fund, L.P., and Strategic Associates, L.P.
                         (incorporated by reference to the exhibit
                         contained in the November 1998 8-K)

                   10.33 Employment Agreement, dated February, 2000,
                         by and among the Company and Denise Stefano
                         (filed herewith)

                   10.34 Employment Agreement, dated December 1,
                         1999, by and among the Company and Peter
                         Duhamel (incorporated by reference to the
                         exhibit contained in the Company's Annual
                         Report on Form 10-KSB for the fiscal year
                         ended October 31, 1999)

                   11    Computation of Earnings Per Share (filed
                         herewith)

                   21    Subsidiaries of the Registrant
                         (incorporated by reference to the exhibit
                         contained in the Company's Annual Report on
                         Form 10-KSB for the fiscal year ended
                         October 31, 1998)

                   23    Consent of Lazar, Levine & Felix LLP (filed
                         herewith)


            (b) Reports on Form 8-K

                None.



<PAGE>        F-1


              INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
              ------------------------------------------







                                                             	PAGE
                                                                ----

INDEPENDENT AUDITORS' REPORT                                    F - 2

CONSOLIDATED BALANCE SHEETS                                     F - 3

CONSOLIDATED STATEMENTS OF OPERATIONS AND
   COMPREHENSIVE INCOME                                         F - 5

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY	F - 6

CONSOLIDATED STATEMENTS OF CASH FLOWS                           F - 7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                      F - 9




<PAGE>        F-2


                    INDEPENDENT AUDITORS' REPORT
                    ----------------------------


To The Board of Directors
Touchstone Applied Science Associates, Inc. and Subsidiaries



We have audited the accompanying consolidated balance sheets of
Touchstone Applied Science Associates, Inc. and Subsidiaries as of
October 31, 2000 and 1999, and the related consolidated statements
of operations and comprehensive income, changes in stockholders'
equity and cash flows for the three fiscal years ended October 31,
2000.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is
to express an opinion on these financial statements based on our
audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America.  Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement.  An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Touchstone Applied Science Associates, Inc. and
Subsidiaries as of October 31, 2000 and 1999 and the results of
its operations and its cash flows for the three fiscal years ended
October 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.

As more fully described in Note 22, subsequent to the issuance of
the Company's October 31, 2000 financial statements and our report
thereon dated December 29, 2000 (except for the second paragraph
of Note 21, as to which the date is January 2, 2001), we became
aware that those financial statements did not reflect certain
deferred revenues associated with the Company's educational
delivery division. In our initial report we expressed an unqualified
opinion, and our opinion remains unqualified.



Lazar, Levine & Felix LLP
Certified Public Accountants
New York, New York
December 29, 2000, except for the second paragraph of Note 21
as to which the date is January 2, 2001



                                  F - 2

<PAGE>        F-3

<TABLE>
<CAPTION>


                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES
                                                                Page 1 of 2
                       CONSOLIDATED BALANCE SHEETS
                                                                 October 31,
                                                           2 0 0 0        1 9 9 9
                                                           -------        -------
<S>                                                  <C>            <C>
     ASSETS
     ------

Current assets:
  Cash and temporary investments                          $   512,088   $ 1,140,893
  Marketable securities                                            --       175,000
  Accounts receivable, net of allowance for doubtful
     accounts of $97,545 and $0, respectively (Note 7)      1,294,756     1,312,148
  Tuition receivable, net of allowance for doubtful
     accounts of $436,483 and $213,817,
     respectively (Note 7)                                  2,097,329     2,176,960
  Inventories                                                 596,654       472,341
  Prepaid expenses and other current assets                   263,641       202,114
                                                          -----------   -----------

     Total current assets                                   4,764,468     5,479,456

Property, plant and equipment - net of
  accumulated depreciation of $1,628,899 and
  $1,387,170, respectively (Notes 4, 8, 9 and 10)           1,945,948     2,072,581

Other assets:
  Noncurrent tuition receivable, net of allowance for
     doubtful accounts of $145,494 and $71,273,
     respectively (Note 7)                                  1,106,868       309,274
  Test passage bank and test development, net of
     accumulated amortization of $1,668,324 and
     $1,838,694, respectively (Note 5)                      2,337,253     2,823,931
  Goodwill, net of accumulated amortization of $452,059
     and $280,527, respectively                             3,818,974     3,953,238
  Deferred income taxes (Note 15)                           1,276,606       415,400
  Other assets                                                954,532     1,330,537
                                                          -----------   -----------

     Total assets                                         $16,204,649   $16,384,417
                                                          ===========   ===========

<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>


                                  F - 3

<PAGE>        F-4

<TABLE>
<CAPTION>

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES
                                                                Page 2 of 2
                       CONSOLIDATED BALANCE SHEETS
                                                                 October 31,
                                                           2 0 0 0        1 9 9 9
                                                           -------        -------
<S>                                                  <C>            <C>
     LIABILITIES AND STOCKHOLDERS' EQUITY
     ------------------------------------

Current liabilities:
  Lines of credit (Note 7)                                $1,097,748    $   400,000
  Current maturities of long-term debt  (Notes 8,
     9, and 18)                                              620,479        503,799
  Current maturities of capitalized lease
     obligations (Note 10)                                    15,950         14,002
  Deferred tuition revenue (Note 22)                          75,792             --
  Accounts payable and accrued expenses (Notes 12
     and 18)                                               1,901,003      1,482,082
                                                          ----------    -----------

     Total current liabilities                             3,710,972      2,399,883

Long-term debt:
   Subordinated debt (Notes 11 and 18)                     3,530,141      4,000,000
   Long-term debt, net of current portion (Notes 8,
     9, and 18)                                            2,666,054      3,103,470
   Long-term capitalized lease obligations, net of
     current portion (Note 10)                                16,107         31,204
                                                          ----------    -----------

     Total liabilities                                     9,923,274      9,534,557
                                                          ----------    -----------

Commitments and contingencies
     (Notes 2, 11, 13, 16, 18, 19 and 21)

Stockholders' equity (Note 14):
  Preferred stock, $.0001 par value, 5,000,000
     authorized, 0 shares issued and outstanding,
     respectively                                                 --             --
  Common stock, $.0001 par value, 20,000,000 shares
     authorized, 2,559,453 and 2,141,801 shares issued and
     outstanding, respectively                                   256            214
  Additional paid-in capital                               5,522,296      5,052,479
  Deferred interest                                         (352,523)      (470,460)
  Unearned compensatory stock                                (10,608)       (19,965)
  Retained earnings                                        1,121,195      2,287,592
                                                          ----------    -----------

     Total stockholders' equity                            6,281,375      6,849,860
                                                          ----------    -----------

     Total liabilities and stockholders' equity          $16,204,649    $16,384,417
                                                         ===========    ===========


<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>



                                  F - 4
<PAGE>        F-5
<TABLE>
<CAPTION>


                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND COMPREHENSIVE INCOME

                                                        Fiscal Years Ended October 31,
                                                   2 0 0 0         1 9 9 9         1 9 9 8
                                                   -------         -------         -------
<S>                                         <C>               <C>             <C>
Assessment products and services revenues      $ 4,897,923       $ 4,591,542      $4,123,235
Educational delivery revenues                    5,074,704         5,297,127              --
Instructional revenues                           2,785,497         2,427,577       2,193,879
                                               -----------       -----------      ----------

Total net revenue (Note 17)                     12,758,124        12,316,246       6,317,114

Cost of goods sold                               4,919,980         4,469,746       1,935,104
                                               -----------       -----------      ----------

Gross profit                                     7,838,144         7,846,500       4,382,010
                                               -----------       -----------      ----------

Operating expenses:
  Selling expenses                               2,811,302         2,505,934       1,596,462
  General and administrative expenses            5,462,452         4,387,253       2,619,034
  Write down of software development costs         120,853                --              --
  Impairment of test passage bank (Note 5)         685,722                --              --
  Loan loss recovery  (Note 6)                          --                --        (200,000)
                                               -----------       -----------      ----------

Total operating expenses                         9,080,329         6,893,187       4,015,496
                                               -----------       -----------      ----------

Income (loss) from operations                   (1,242,185)          953,313         366,514

Other income (expense):
  Gain (loss) on sale of assets                     26,241           (10,723)          2,689
  Other income                                       2,514             5,883              --
  Interest expense                                (817,415)         (818,710)       (253,829)
  Investment income                                 56,237           128,190          44,833
                                               -----------       -----------      ----------

Income (loss) before income taxes               (1,974,608)          257,953         160,207

Income taxes (benefit) (Note 15)                 (808,970)            77,196          29,005
                                               -----------       -----------      ----------

Net income (loss)                              (1,165,638)           180,757         131,202

Other comprehensive loss, net of tax:
  Unrealized holding loss on securities
     arising during the period                         --             (5,924)         (2,677)
                                              -----------        -----------      ----------

Total comprehensive income (loss)             $(1,165,638)       $   174,833      $  128,525
                                              ===========        ===========      ==========

Weighted average shares outstanding
  Basic                                         2,438,167          2,141,801       2,127,051
  Diluted                                       2,438,167          2,345,449       2,180,259

Earnings (loss) per share
  Basic                                       $      (.48)       $       .08      $      .06
  Diluted                                     $      (.48)       $       .08      $      .06

<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>




                                  F - 5

<PAGE>        F-6
<TABLE>
<CAPTION>


                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

        CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY



                                                                                                     Accumulated
                                                  Additional              Stock         Unearned     Other
                Preferred Stock    Common  Stock    Paid-in     Deferred  Subscriptions Compensatory Comprehensive Retained
                Shares    Amount   Shares  Amount   Capital     Interest  Receivable    Stock        Income        Earnings
                ------    ------   ------  ------   -------     --------  ----------    -----        ------        --------


<S>            <C>     <C>      <C>        <C>    <C>         <C>         <C>         <C>           <C>         <C>

Balance at
 November 1,
  1997, as
  previously
  reported        1,500   $  --    8,389,322  $839   $4,365,875   $     --     $(14,350)   $(107,046)  $  8,601     $1,975,633

  One-for-four
   stock split
    effected on
    March 4, 1999    --      --   (6,291,996) (630)         630         --           --           --         --             --
                  -----   -----   ----------- -----  ----------   --------     ---------   ---------   --------     ----------

Balance at
 November 1,
  1997, as
  adjusted        1,500      --    2,097,326   209    4,366,505         --      (14,350)    (107,046)     8,601      1,975,633

  Proceeds from
   exercise of
    options          --      --       19,475     2       52,777         --           --           --         --             --
  Proceeds from
   exercise of
    warrants         --      --       25,000     3       45,122         --           --           --         --             --
  Deferred
   interest
    on debt
    securities       --      --           --    --      588,075   (588,075)          --           --         --             --
  Net unrealized
   gain (loss)
    on marketable
    securities       --      --           --    --           --         --           --           --     (2,677)            --
  Financial
   advisory
    services         --      --           --    --           --         --           --       69,859         --             --
  Net income         --      --           --    --           --         --           --           --         --        131,202
                  -----    ----      -------  ----     --------  ---------        -----      -------    -------       --------

Balance at
 October 31,
  1998            1,500      --    2,141,801   214    5,052,479   (588,075)     (14,350)     (37,187)     5,924      2,106,835

  Redemption
   of preferred
    shares       (1,500)     --           --    --           --         --           --           --         --             --
  Receipt of
   stock
    subscriptions    --      --           --    --           --         --       14,350           --         --             --
  Financial
   advisory
    services         --      --           --    --           --         --           --       17,222         --             --
  Interest
   expense           --      --           --    --           --    117,615           --           --         --             --
  Net unrealized
   gain (loss) on
    marketable
    securities       --      --           --    --           --         --           --           --     (5,924)            --
  Net income         --      --           --    --           --         --           --           --         --        180,757
                  -----    ----      -------  ----     --------   --------        -----      -------    -------       --------

Balance at
 October 31,
  1999               --      --    2,141,801   214    5,052,479   (470,460)          --      (19,965)        --      2,287,592

  Issuance on
   conversion of
   subordinated
   debentures        --      --      417,652    42      469,817         --           --           --         --             --
  Financial
   advisory
    services         --      --           --    --           --         --           --        9,357         --             --
  Interest
   expense           --      --           --    --           --    117,937           --           --         --             --
  Net (loss)         --      --           --    --           --         --           --           --         --     (1,165,638)
                  -----    ----      -------  ----     --------   --------        -----      -------    -------       --------

Balance at
 October 31,
  2000               --   $  --    2,559,453  $256    $5,522,296 $(352,523)      $   --    $(10,608)    $    --    $ 1,121,954
                  =====   =====    =========  ====    ========== =========       ======    ========     =======    ===========


<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>




                                  F - 6

<PAGE>        F-7
<TABLE>
<CAPTION>


                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                Page 1 of 2

                                                             Fiscal Years Ended October 31,
                                                        2 0 0 0         1 9 9 9        1 9 9 8
                                                        -------         -------        -------
<S>                                               <C>             <C>             <C>
OPERATING ACTIVITIES
Net income (loss)                                     $(1,165,638)     $  180,757    $ 131,202
Adjustments to reconcile net income (loss)
   to net cash provided by (used from)
   operating activities:
     Depreciation and amortization                      1,067,472         969,498      650,869
     Deferred interest                                    117,937         117,615           --
     Deferred income taxes                               (861,197)        (25,251)     (54,426)
     Financial advisory services                            9,357          17,222       69,859
     Write down of software development costs             120,853              --           --
     Impairment of test passage bank                      685,722              --           --
     Bad debt expense                                     469,375         192,594           --
     Gain (loss) on sale of assets                        (26,241)         12,231       (2,689)
     Write off of terminated acquisition costs            157,493              --           --
Changes in operating assets and liabilities:
     Accounts receivable                                 (142,785)        (24,884)    (484,243)
     Tuition receivable                                (1,027,003)       (638,318)          --
     Inventories                                         (124,313)          6,528     (118,642)
     Prepaid expenses                                     (61,527)        (16,671)     207,704
     Other assets                                         (15,173)         13,401       (3,293)
     Deferred tuition revenue                             (75,792)             --           --
     Accounts payable and accrued expenses                358,921        (859,237)     500,418
                                                      -----------      ----------    ---------

   NET CASH FLOWS FROM OPERATING ACTIVITIES              (360,955)        (54,515)     896,759
                                                      -----------      ----------    ---------

INVESTING ACTIVITIES
     Test passage bank and test development              (564,700)       (482,799)       (230,838)
     Software development costs                           (93,529)        (52,424)        (68,045)
     Prepublication costs                                (128,844)       (122,698)             --
     Purchase of marketable securities                         --        (175,000)             --
     Proceeds from sale of marketable securities          175,000         370,000         535,000
     Proceeds from sale of assets                          50,000          13,200              --
     Acquisition of subsidiaries                               --      (1,939,648)             --
     Deferred acquisition costs                                --        (157,493)       (353,406)
     Acquisition of fixed assets                         (129,640)       (334,773)       (163,744)
                                                      -----------      ----------    ---------

   NET CASH FLOWS FROM INVESTING ACTIVITIES              (691,713)     (2,881,635)       (281,033)
                                                      -----------      ----------    ---------

<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>



                                  F - 7


<PAGE>        F-8
<TABLE>
<CAPTION>


                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

                                                                Page 2 of 2

                                                             Fiscal Years Ended October 31,
                                                        2 0 0 0         1 9 9 9        1 9 9 8
                                                        -------         -------        -------
<S>                                                 <C>            <C>             <C>
FINANCING ACTIVITIES
  Loan origination costs                                      --              --       (231,307)
  Deferred offering costs                                     --              --         (1,750)
  Proceeds from exercise of warrants                          --              --         46,875
  Proceeds from exercise of options                           --              --         52,779
  Stock subscription received                                 --          14,350             --
  Repayment of capital lease obligations                 (13,149)         (5,790)            --
  Net proceeds from loan payable                         697,748              --       (343,804)
  Loan from officer                                       60,000              --             --
  Proceeds from long-term debt                                --              --      4,000,000
  Repayment of long-term debt                           (320,736)       (911,747)      (314,953)
                                                      ----------      ----------     ----------

NET CASH FLOWS FROM FINANCING ACTIVITIES                 423,863        (903,187)     3,207,840
                                                      ----------      ----------     ----------

NET CHANGE IN CASH AND TEMPORARY INVESTMENTS            (628,805)     (3,839,337)     3,823,566

CASH AND TEMPORARY INVESTMENTS
  AT BEGINNING OF PERIOD                               1,140,893       4,980,230      1,156,664
                                                      ----------      ----------     ----------

CASH AND TEMPORARY INVESTMENTS
  AT END OF PERIOD                                   $   512,088      $1,140,893     $4,980,230
                                                     ===========      ==========     ==========

SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid during the year for:

  Interest                                           $   824,852      $  741,673     $  260,114
                                                     ===========      ==========     ==========

  Income taxes                                       $   102,982      $   70,786     $   60,502
                                                     ===========      ==========     ==========

  Noncash investing and financing activities:

  Conversion of debt to common stock                 $   469,859      $       --     $       --
                                                     ===========      ==========     ==========

  Deferred interest on issuance of warrant           $        --      $       --     $  588,075
                                                     ===========      ==========     ==========

  Assets acquired under capital lease obligations    $        --      $   32,571     $       --
                                                     ===========      ==========     ==========

SUMMARY OF ACQUIRED SUBSIDIARIES:
  Assets acquired consisting primarily of goodwill   $        --      $6,916,234     $       --
  Liabilities assumed                                         --       3,562,828             --
                                                     -----------      ----------     ----------

    Net purchase price                               $        --      $3,353,406     $       --
                                                     ===========      ==========     ==========

<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>





                                  F - 8

<PAGE>        F-9

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------

Organization
------------

Touchstone Applied Science Associates, Inc. (the "Company"), was
originally incorporated in the State of New York in 1976.  In August
1991, the Company changed its corporate domicile to Delaware by
merger into a Delaware corporation created exclusively for that
purpose.  The Company develops, publishes and distributes a
proprietary line of reading tests specifically to meet clients'
measurement specifications to elementary and secondary schools,
colleges and universities throughout the United States.  In January
1997, the Company purchased the outstanding capital stock of Beck
Evaluation & Testing Associates, Inc. ("BETA"), a company which
designs tests and evaluates assessment needs for schools, school
districts and test and textbook publishers throughout the United
States (Note 2).  In May 1997, the Company formed a wholly-owned
subsidiary, Modern Learning Press, Inc. ("MLP"), which purchased
certain assets of Programs for Education, Inc., a company which
designs, publishes and distributes "consumable" student workbooks
for grades K-6 and creates and publishes books and pamphlets for
elementary school teachers and parents throughout the United States
(Note 2).  In July 1998, the Company formed a wholly-owned
subsidiary, TASA Educational Services Corporation ("TESC"), which
was established to manage the Company's educational delivery
business.  In November 1998, TESC formed a wholly-owned subsidiary,
MESI Acquisition Corp. ("MESI"), which purchased substantially all
of the operating assets of the Mildred Elley School, Inc. ("Former
Elley") (Note 2).  In June 2000, MESI changed its name to Mildred
Elley School, Inc. ("Elley").

Principles of Consolidation
---------------------------

The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, BETA, MLP, TESC and its
wholly-owned subsidiary Elley.  All material intercompany
transactions have been eliminated in consolidation. In addition, certain
reclassifications have been made in the accompanying consolidated financial
statements in order to conform to the presentation of the fiscal year ended
October 31, 2000.

Goodwill
--------

Included in the purchase of the Company's subsidiaries was goodwill
totaling $374,067 for BETA, $2,490,864 for MLP and $3,408,776 for
Elley.  This goodwill is being amortized over a period of fifteen
years for BETA and MLP and thirty years for Elley.  In July 1997, the
Company deemed goodwill purchased in the MLP transaction totaling
$2,002,674 to be impaired based upon the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of".  Accordingly, goodwill was reduced to fair value.  The
Company will continue to evaluate goodwill for potential impairment.


                                  F - 9

<PAGE>        F-10


                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

Cash and Temporary Investments
------------------------------

Cash and temporary investments include all cash balances on hand and
short-term, highly liquid investments with original maturities of
three months or less.  These investments consist primarily of money
market mutual funds which make monthly tax-free dividend payments.

Inventories
-----------

Inventories, which based on the nature of the Company's operations
consist solely of finished goods, are stated at the lower of cost
(first-in, first-out method) or market.

Marketable Securities
---------------------

The Company utilizes Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" to account for marketable securities.  Under this
standard, certain investments in debt and equity securities are
reported at fair value. The Company's marketable securities, which
consist primarily of investment grade bonds, are being reported as
available for sale securities.  The market value of these securities
at October 31, 2000 and 1999 is as follows:

                                            October 31,
                                     2 0 0 0          1 9 9 9
                                     -------          -------

Aggregate cost                      $     --         $ 175,000
Gross unrealized gain                     --                --
Gross unrealized loss                     --                --
Loans collateralized by securities        --                --
                                    --------         ---------

                                    $     --         $ 175,000
                                    ========         =========

All of these securities mature within one through five years.  Cost
of the securities used in the computation of realized gains and
losses is determined using the specific identification method.
During the fiscal years ended October 31, 2000, 1999 and 1998,
respectively, bonds with an aggregate face value of $0, $370,000 and
$535,000 matured, resulting in a realized gain on these securities of
$0, $1,906 and $2,689, respectively.



                                  F - 10

<PAGE>        F-11

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                                  AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
--------------------------------------------------------

Accounts Receivable
-------------------

Accounts receivable have been presented net of allowance for doubtful
accounts.  Prior to Fiscal 2000, the Company had experienced
virtually no trade bad debts and, thus, no allowance had been
previously provided for.

Tuition Receivable
------------------

Elley provides alternate financing arrangements for those students
who do not qualify for Federal and state financial aid to cover their
tuition.  Since student contracts acquired as part of the Elley
acquisition, as well as self-funded students who entered school
subsequent thereto, have varying repayment terms which extend beyond
the next twelve-month period, these receivables have been classified
as current and non-current.

Property, Plant and Equipment
-----------------------------

Property, plant and equipment are stated at cost.  The Company
provides for depreciation generally on an accelerated method (double-
declining balance) for personal property and on the straight-line
method for real property, by charges  to income at rates based upon
estimated recovery periods as follows:

         Building                            31-1/2 years
         Building improvements               15 to 31-1/2 years
         Leasehold improvements              39 years
         Furniture, fixtures and equipment   5 to 7 years
         Automobiles                         5 years




                                  F - 11

<PAGE>        F-12

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                                  AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

Income Taxes
------------

The Company has elected to file a consolidated Federal income tax
return with its subsidiaries. The Company's deferred income taxes
arise principally from the differences in the recording of expenses
relating to the test passage bank and test development (Note 5),
differences relating to the reporting of goodwill by the Company's
subsidiaries, and net operating losses.  Income taxes are reported
based upon Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes".

Software Development
--------------------

The Company accounts for costs associated with the development of
software products pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed".  Pursuant to
these rules for product development, the work performed prior to the
determination of technological feasibility is treated as research and
development costs and is expensed as incurred.  From the point a
project obtains technological feasibility until it is ready for sale,
the payroll and payroll-related charges and any direct material costs
are capitalized.  Capitalization of computer software costs is
discontinued when the product is available to be sold.  During Fiscal
2000, the Company, pursuant to the provisions set forth in SFAS No.
86, determined that the unamortized software development costs
associated with certain of its saleable computer software products
exceeded net realizable value by approximately $121,000.
Accordingly, the Company wrote down these costs to net realizable
value as of October 31, 2000.

During Fiscal 1999, the Company adopted Statement of Position
("SOP") No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" as issued by The American
Institute for Certified Public Accountants.  Pursuant to this
statement, costs incurred during the preliminary stage of a project
to design computer software for internal use are expensed as
incurred.  Once such a project enters its development stage, the
payroll and payroll-related charges and any direct material costs are
capitalized.  Capitalization of these computer software development
costs is discontinued when the project enters its post-
implementation/operation stage.

As of October 31, 2000 and 1999 unamortized software development
costs totaled approximately $140,000 and $313,000, respectively, and
were included as a component of other assets within the Company's
balance sheets.



                                  F - 12
<PAGE>        F-13


                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

Amortization
------------

Loan origination costs and mortgage costs (see Note 11) are amortized
using the straight-line method over the term of the indebtedness.
Other capitalized costs are amortized using the straight-line method
over a period of five (5) years for software development, seven (7)
years for non-compete agreements, seven to eleven (7 - 11) years for
test passage bank and test development costs, and fifteen to thirty
(15 - 30) years for goodwill.  Amortization expense totaled $826,658,
$729,219 and $507,387 for the fiscal years ended October 31, 2000,
1999 and 1998, respectively.

Reverse Stock Split
-------------------

All common shares and per share amounts have been adjusted to give
retroactive effect to a one-for-four reverse stock split effected on
March 4, 1999.

Concentration of Credit Risk
----------------------------

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
accounts/tuition receivable.  The Company maintains substantially all
its cash balances in a limited number of financial institutions.  The
balances are insured by the Federal Deposit Insurance Corporation up
to $100,000.  At October 31, 2000 and 1999, the Company's uninsured
cash balances totaled $280,213 and $541,721, respectively.  The
Company performs periodic reviews of the relative credit rating of
its banks to lower its risk.  The Company believes that concentration
with regards to accounts receivable is limited due to its large
customer base.

As part of the acquisition of Elley, the Company acquired unsecured
student loans which are being reflected at net realizable value.
Additionally, the Company initiated student loans during the fiscal
years ended October 31, 2000 and 1999.  The risk of loss to the
Company is the balance owed by the student at the time of default.
The Company plans to monitor these loans as closely as possible to
mitigate the potential risk.

Revenue Recognition
-------------------

Revenues from the Company's sales of its proprietary tests and other
assessment-related products, as well as from its instructional
materials, are recognized when product is shipped from the Company's
warehouse.  Assessment consulting revenues are recognized when the
consulting services are rendered.  Tuition revenues from the
Company's educational delivery division are recognized at the point
in time in which the Company has no exposure to future tuition
refunds associated with the respective academic semester.





                                  F - 13

<PAGE>        F-14

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

Revenue Recognition (Continued)
-------------------

There is a right of return on test booklets, answer sheets and
certain software products. Upon return within a specified period, a
credit is issued, with certain chargeoffs, or, in the case of
software products, the item is replaced.  In the past, the Company's
returns have been insignificant.  As a result, no reserve has been
provided for.

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and make disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period.  Actual results could differ from those
estimates.

Fair Value
----------

The Company has a number of financial instruments, none of which is
held for trading purposes.  The Company estimates that the fair value
of all financial instruments at October 31, 2000 and 1999, does not
differ materially from the aggregate carrying values of these
financial instruments recorded in the accompanying balance sheets.
The estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation
methodologies.  Considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value, and,
accordingly, the estimates are not necessarily indicative of the
amounts that the Company could realize in a current market exchange.

Earnings (loss) per Share
-------------------------

Earnings (loss) per share for each of the fiscal years ended October
31, 2000, 1999 and 1998 were computed by dividing net income by the
weighted average number of common and common equivalent shares
outstanding and also was adjusted for the assumed conversion of
shares issuable upon the exercise of options and warrants in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share".  The Company had a net loss for the fiscal year
ended October 31, 2000 and, accordingly, common stock equivalents are
excluded from this computation as the effect would be anti-dilutive.

Marketing and Promotional Costs
-------------------------------

Marketing and promotional costs are expensed as incurred and
aggregated $1,080,646, $1,012,491 and $644,471 for the fiscal years
ended October 31, 2000, 1999 and 1998, respectively.



                                  F - 14

<PAGE>        F-15

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

Regulatory Compliance
---------------------

As an educational institution, Elley is subject to licensure from
various accrediting and state authorities and other regulatory
requirements of the United States Department of Education.  As of
October 31, 2000 and 1999, Elley was in compliance with all such
requirements.

Recently Issued Accounting Standards
------------------------------------

In December 1999, the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements", which
provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC and was
effective the first fiscal quarter of fiscal years beginning
after December 15, 1999, and requires companies to report any
changes in revenue recognition as a cumulative change in
accounting principle at the time of implementation in
accordance with Accounting Principles Board ("APB") Opinion
No. 20, "Accounting Changes".  Subsequently, SAB Nos. 101A and
101B were issued to delay the implementation of SAB No. 101
and, accordingly, the Company will adopt this pronouncement
during its fiscal year ended October 31, 2001.

In March 2000, the Financial Accounting Standards Board
("FASB") issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation", an
interpretation of Accounting Principles Board ("APB")
Opinion No. 25, "Stock Issued to Employees".
Interpretation No. 44 clarifies the application of APB No. 25
for the definition of an employee for purposes of applying
APB No. 25, the criteria for determining whether a plan
qualifies as a non-compensatory plan, the accounting
consequences of various modifications to the terms of a
previously fixed stock option or award, and the accounting
for an exchange of stock compensation awards in a business
combination.  The Company adopted this pronouncement during
the current fiscal year and for the fiscal year periods
subsequent hereto.

NOTE 2 - BUSINESS ACQUISITIONS
------------------------------

Beck Evaluation and Testing Associates, Inc.
--------------------------------------------

In January 1997, the Company acquired all the outstanding capital
stock of BETA. The purchase price consisted of $130,000 paid in cash,
$150,000 payable in promissory notes, bearing interest at the rate of
8 1/4% per annum and maturing on January 2, 1999, and 150,000 shares
of the Company's common stock. Additionally, the former stockholder
and officer of BETA has the option to repurchase all of the
outstanding capital stock of BETA from the Company for a period of
six years, but may not exercise the option in the first three years
unless certain conditions relating to his termination of employment
are met.  The acquisition is accounted for using the purchase
method of accounting and, accordingly, the Company's financial
statements include the operations of BETA from the date of
acquisition.

Modern Learning Press, Inc.
---------------------------

In May 1997, a newly-formed wholly-owned subsidiary of the Company,
MLP, purchased certain assets of Programs for Education, Inc.  In
addition to assuming certain liabilities, MLP purchased the assets for
$3,200,000.  The purchase price paid by MLP consisted of $2,200,000 in
cash and a secured promissory note for $1,000,000 bearing interest at
a rate of one percent (1%) above prime rate (9 1/2% at October 31,
2000) but in no event less than nine percent (9%) per annum and
payable in equal quarterly installments over a five-year period (Note
9).  The promissory note is secured by certain titles transferred to
MLP and is guaranteed by the Company.  Among other provisions, the
purchase includes a non-compete agreement with the previous owner
prohibiting him or any party related to him from competing with the
Company for a period of seven (7) years.  Included in the purchase
price were consulting fees to the former owner for a period of one
year.  In addition, the Company was required to pay a deferred bonus
totaling approximately $254,000 to the previous owner payable on or
before September 30, 1997 and has agreed to pay this former owner
royalties on sales of certain of MLP's products, for a term of seven
(7) years following the closing of the acquisition in an amount equal
to a minimum of $80,000 annually, with a maximum of $120,000 in the
first year, with increases each year to a maximum of $240,000 in the
seventh year.  The acquisition is accounted for using the
purchase method of accounting and, accordingly, the Company's
financial statements include the operations of MLP from the date of
acquisition.


                                  F - 15

<PAGE>        F-16

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - BUSINESS ACQUISITIONS (Continued)
------------------------------

Mildred Elley
-------------

On November 2, 1998, a newly-formed wholly-owned subsidiary of TESC,
MESI (now known as Elley) purchased substantially all of the operating
assets of Former Elley.  In addition to assuming certain liabilities,
MESI purchased the assets for $3,000,000.  The allocation of the
assets purchased was revised during the fiscal year ended October 31,
1999.  The purchase price paid by MESI consisted of $2,000,000 in cash
and a promissory note for $1,000,000 bearing interest at a rate of
eight and one-half percent (8 1/2%) per annum.  Principal and interest
payments are payable each quarter beginning in February of 1999 and
mature in November of 2003 (Note 9).  As a result of certain
adjustments to the original purchase price as set forth by the asset
purchase agreement, the Company, during the fiscal year ended October
31, 2000, entered into two additional notes with the shareholders of
Former Elley totaling an aggregate of $149,376.  The notes carry the
same interest rate and maturity date of the original shareholder note.
Principal and interest payments of these additional notes are payable
each quarter beginning in May of 2000 (Note 9).  The acquisition is
accounted for using the purchase method of accounting and,
accordingly, the Company's financial statements include the operations
of MESI from the date of acquisition.

As a result of the Elley acquisition, TESC assumed the obligations relating
to employment agreements with the majority shareholder of Former Elley
and three key employees.  During Fiscal 1999 the Company granted
options pursuant to the Company's Amended & Restated 1991 Stock Option
Incentive Plan to each of such employees to purchase an aggregate
41,250 shares of the Company's common stock at $2.88 per share, the
fair market value of the Company's common stock on the date of grant.
The options may be exercised over a nine-year period commencing one
year from the date of grant.  As of October 31, 2000, two of the three
key employees were no longer in the employ of the Company and,
accordingly, an aggregate of 2,500 options were cancelled.

Pro forma Information
---------------------

The following unaudited pro forma consolidated income statement data
presents the consolidated results of operations of the Company had the
transactions involving BETA, MLP and Elley occurred at the beginning
of the year presented:

                                          Fiscal Year Ended October 31,
                                                     1 9 9 8
                                                     -------


Net sales                                          $11,420,114
Net income                                             10,867
Basic earnings per share                                   --
Diluted earnings per share                                 --

The above pro forma information does not purport to be indicative of
what would have occurred had the acquisitions been made as of such
date or of the results which may occur in the future.


                                  F - 16

<PAGE>        F-17


                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3 - NOTES RECEIVABLE
-------------------------

As of October 31, 2000 and 1999, the Company held two notes receivable
in the aggregate amount of $159,327.  The notes receivable include
(1) a $150,000 note with interest at a rate of 6.17% per annum
secured by a mortgage on certain of the obligor's real property,
with principal due on December 31, 2003 and (2) a $9,327 note with
an annual interest rate of 8.75% requiring monthly payments of $516
consisting of principal and interest, commencing February 1, 2001.

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
--------------------------------------

Property, plant and equipment are summarized as follows:
                                              October 31,
                                        2 0 0 0        1 9 9 9
                                        -------         -------

Land                                  $  161,367      $  161,367
Building                               1,807,591       1,807,591
Building improvements                    522,520         512,983
Leasehold improvements                    54,457          59,876
Furniture, fixtures and equipment        921,905         827,927
Automobiles                              107,007          90,007
                                      ----------      ----------

                                       3,574,847       3,459,751

Less:  accumulated depreciation        1,628,899       1,387,170
                                      ----------      ----------

                                      $1,945,948      $2,072,581
                                      ==========      ==========

Depreciation expense for the fiscal years ended October 31, 2000, 1999
and 1998 was $240,814, $240,279 and $149,880, respectively.

Included in furniture, fixtures and equipment is $48,137 of equipment
under capital leases.


                                  F - 17

<PAGE>        F-18

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 5 - TEST PASSAGE BANK AND TEST DEVELOPMENT
-----------------------------------------------

The test passage bank is principally comprised of payroll and payroll-
related costs expended in the development of test passages which are
used in the creation of the Company's tests.  The process of writing
and calibrating a test passage takes approximately two years, and all
costs associated with the process are capitalized during this period.
Amortization of these costs begins once the development period has
elapsed, which in most cases, represents the point in time at which the
new test passage is placed into the test passage bank and becomes
available to be utilized within the Company's existing tests, or the
point in time at which a newly developed test becomes available for
sale.  Costs capitalized in connection with the development of passages
used in the Company's Degrees of Reading Power Test ("DRP") have been
estimated to have a useful life of eleven years and, accordingly, are
being amortized over an eleven-year period.  Costs capitalized in
connection with the development of passages used in all other of the
Company's tests have been estimated to have a useful life of seven
years and, accordingly, are being amortized over a seven-year period.

During the current fiscal year, the Company deemed certain of its test
passages, in the net aggregate amount of $685,722, to be impaired based
upon the provisions of Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of". Accordingly,
the value of these passages was reduced to zero.

NOTE 6 - LOAN LOSS RECOVERY
---------------------------

On February 1, 1994, the Company consolidated two outstanding
subordinated, unsecured demand loans receivable from the Harriman
Group, Inc. ("HGI").  The notes bore interest at a rate of ten
percent (10%) per annum, were payable annually, and were originally due
on February 1, 2002.  Additionally, if certain conditions were met, the
Company had the right to accelerate the due date.

On November 5, 1996, the Company notified HGI of its intention to
accelerate the outstanding obligations in accordance with the terms of
the above loans.  Pursuant to this notification, the entire principal
balance plus accrued interest to the date of payment was due by May 5,
1997.

In May 1997, HGI defaulted on its loan to the Company.  Consequently,
the Company determined that the remaining principal and accrued
interest totaling $405,000 was uncollectible and, accordingly, this
amount was written off as a loan loss as of October 31, 1997.

In March 1998, the Company entered into an agreement with HGI, Inc.
(formerly the Harriman Group, Inc.) and one of its officers.  The
agreement provided for the settlement of the note receivable plus
accrued interest, for an aggregate of $200,000, and was guaranteed by
an irrevocable letter of credit.   Payment, pursuant to the agreement,
was received in August 1998 and was reflected as a loan loss recovery
as of October 31, 1998.


                                  F - 18

<PAGE>        F-19

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7 - LINES OF CREDIT
------------------------

As of October 31, 2000, Elley owed $200,000 to a bank, which is the
maximum available under a particular line of credit promissory note.
The note is collateralized by a second lien on all of Elley's corporate
assets as well as the guarantees of both TESC and TASA.  This note
bears interest at a rate of 1.0% above the prime lending rate and was
originally due on December 31, 1999.  During the first quarter of the
current fiscal year, the bank agreed to extend this line of credit
through March 31, 2000.  As of October 31, 2000, the Company had not
received a further extension of the due date for this credit line and
is currently pursuing such extension with the bank. The bank has the
right, under the terms of the line of credit promissory note, to call
the note but as of January 2, 2001 had not pursued such action.

As of October 31, 2000, Elley also owed $200,000 which is the maximum
available from another line of credit promissory note with the same
bank.  This note is collateralized by a first lien on tuition
receivables as well as the guarantees of both TESC and TASA.  This note
bears interest at a rate 1.0% above the prime lending rate and was
originally due on December 31, 1999.  During the first quarter of the
current fiscal year, the bank agreed to extend this line of credit
through March 31, 2000.  As of October 31, 2000, the Company had not
received a further extension of the due date for this credit line and
is currently pursuing such extension with the bank. The bank has the
right, under the terms of the line of credit promissory note, to call
the note but as of January 2, 2001 had not pursued such action.

In March 2000, the Company obtained an additional line of credit
totaling $750,000 from a bank.  Borrowings under the line of credit
accrue interest at the bank's prime rate plus one percent (1.0%) and
the line expires on April 1, 2001.  The line is collateralized by the
Company's accounts receivable (excluding those receivables associated
with the Company's wholly-owned subsidiary TESC and its related
subsidiaries) and inventory and contains various financial covenants
pertaining to the maintenance of working capital and debt service coverage.
As of October 31, 2000, the Company was in breach of all such covenants.
Under the terms of the line of credit agreement, the bank may call the
line if the Company is in violation of any of these covenants. As of
January 2, 2001, the bank had not waived any of the covenant requirements
and the Company is currently pursuing such waiver. Borrowings under this
new line aggregated $697,748 as of October 31, 2000.

NOTE 8 - MORTGAGE PAYABLE
-------------------------

In August 1997, the Company remortgaged its facilities for $1,800,000
with Middletown Savings Bank (now Hudson United Bank).  Borrowings on
the new mortgage incur interest at the rate of 8 1/8% per annum.  The
mortgage is to be repaid through equal monthly installments with a
balloon payment due in Fiscal 2007 (Note 9).  Proceeds from this
remortgaging were used to retire all prior mortgages held on the
facilities and certain short-term debt associated with the acquisition
of MLP (Note 2).


                                  F - 19


<PAGE>        F-20

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - LONG-TERM DEBT
-----------------------

Long-term debt consists of the following:


<TABLE>
<CAPTION>
                                            Interest        Due           October 31,
Description                                   Rate          Date     2 0 0 0      1 9 9 9
-----------                                   ----          ----     -------      -------

<S>                                     <C>            <C>      <C>          <C>
Secured mortgage payable to bank in
  monthly installments of $15,196
  including interest (Note 8)                8 1/8%         2007   $1,680,764    $1,722,323

Secured note payable to stockholder of Programs
  for Education, Inc. in equal quarterly
  installments of $50,000                    Prime + 1%
  plus interest (Note 2)                     (but no less
                                             than 9%)       2002      350,000       550,000

Unsecured notes payable to stockholders
  of Former Elley in equal quarterly
  installments of $73,830 including
  interest (Notes 2 and 18)                  8 1/2%         2003      829,215       832,371

Secured note payable to bank for working
  capital requirements in equal
  monthly principal payments
  of $3,512 plus interest                    Prime + 2%     2008      325,210       367,527

Secured notes payable for equipment
  financing in equal monthly
  installments of $2,273 and
  $1,500 including interest                  Prime + 1%     2003      101,344       135,048
                                                                   ----------    ----------

                                                                    3,286,533     3,607,269

Less:  current  maturities                                            620,479       503,799
                                                                   ----------    ----------

Non-current portion                                                $2,666,054    $3,103,470
                                                                   ==========    ==========

</TABLE>


Long-term debt matures as follows:

Fiscal year ending October 31:
                                          2001    $  620,479
                                          2002       519,788
                                          2003       425,702
                                          2004       104,317
                                          2005       109,561
                                    Thereafter     1,506,686
                                                  ----------

                  Principal payments remaining    $3,286,533
                                                  ==========




                                  F - 20

<PAGE>        F-21

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - CAPITALIZED LEASE OBLIGATIONS
---------------------------------------

The Company is obligated under capitalized leases for certain
computer and telephone equipment.

Future minimum lease payments under these capitalized lease
obligations, including interest, as of October 31, 2000 are as
follows:

Fiscal year ending October 31:
                                          2001       $19,164
                                          2002       $16,867
                                                     -------

                                                      36,031
                        Less: imputed interest         3,974
                                                     -------
Present value of future minimum lease payments        32,057
                     Less:  current maturities        15,950
                                                     -------

                                                     $16,107
                                                     =======

These leases have interest rates ranging from 11.9% to 14.6%.

NOTE 11- SUBORDINATED  DEBENTURE AGREEMENT
------------------------------------------

In October 1998, the Company issued debentures to Cahill Warnock
Strategic Partners Fund L.P. ("CWSPF") and Strategic Associates, L.P.
("SA") for an aggregate of $4,000,000 pursuant to a Securities
Purchase Agreement entered into among the parties in September 1998.
These debentures are subordinate to certain senior indebtedness,
which as of October 31, 2000, consisted primarily of a mortgage
payable aggregating $1,680,764.  Interest pursuant to the debentures
is incurred at an annual rate of eight percent (8%) and is payable
quarterly.  The debentures, which are due in October 2003, contain
provisions for the prepayment of the loan's principal.  Among other
provisions, the Company agreed to use the proceeds from the
debentures to acquire Elley (Note 2) and other comparable educational
institutions which are approved by CWSPF and SA.  Additionally, the
agreement contains provisions for the issuance of warrants, allowing
CWSPF and SA to acquire an aggregate of 690,230 shares of the
Company's common stock at $1.40 per share.  These warrants are
exercisable for a five-year period from designated initial dates as
set forth in the debenture agreement.  The value of the warrants,
totaling $588,075, has been reflected as a deferred interest charge
which is being amortized over the life of the agreement.  The
agreement calls for certain restrictive covenants, with which the
Company was in compliance at October 31, 2000 and 1999.


                                  F - 21


<PAGE>        F-22

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11- SUBORDINATED DEBENTURE AGREEMENT (Continued)
-----------------------------------------

During the first quarter of the current fiscal year, in consideration
of CWSPF and SA's authorization to subordinate their debentures to
other indebtedness incurred by the Company during the current fiscal
year, the warrants were repriced to $1.125 per share.  In February
2000, CWSPF and SA exercised an aggregate of 417,652 warrants for
$469,859.  The proceeds from the exercise were used to reduce the
principal balance of the subordinated debentures.

NOTE 12 - RELATED PARTY TRANSACTIONS
------------------------------------

In July 2000, two officers of the Company loaned an aggregate of
$80,000 to the Company.  The loans bear interest at the prime rate
and are payable on demand. In September 2000, the Company repaid
loans to one of the officers totaling $20,000.  At October 31, 2000,
the loan payable balance has been reflected as a component of
accounts payable and accrued expenses within the Company's balance
sheet.

NOTE 13 - RETIREMENT PLANS
--------------------------

The Company has a qualified 401(k) Profit Sharing Plan under which
eligible employees who are eighteen years of age and have completed
either six months or one thousand hours of employment become
participants.  The Plan allows total contributions of up to fifteen
percent (15%) of the eligible employee's salary through Company
contributions and a salary reduction mechanism.  Company
contributions to the Plan are optional and accrue at the discretion
of the Board of Directors.  For the fiscal years ended October 31,
2000, 1999 and 1998, the Company made contributions to the profit
sharing plan equal to 0%, 0% and 5%, of each employee's compensation,
respectively, thereby limiting each eligible employee to contribute
up to 15%, 15% and 10%, respectively.

Net assets for the Profit Sharing Plan, as estimated by the
Massachusetts Mutual Life Insurance Company which maintains the
plan's records, were $1,794,313 and $1,684,666 at October 31, 2000
and 1999, respectively.

In October 1991, the Company adopted a Money Purchase Pension Plan
under which eligible employees who are eighteen years of age and have
completed either six months or one thousand hours of employment become
participants. Under this Plan, which was first effective for the
fiscal year ended October 31, 1991 and which has been qualified by
the Internal Revenue Service, the Company makes a mandatory annual
contribution equal to ten percent (10%) of each eligible employee's
compensation.



                                  F - 22


<PAGE>        F-23

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13 - RETIREMENT PLANS (Continued)
--------------------------

Net assets for the Money Purchase Pension Plan, as estimated by the
Massachusetts Mutual Life Insurance Company which maintains the
plan's records, were $944,366 and $964,539 at October 31, 2000 and
1999, respectively.

For the fiscal years ended October 31, 2000, 1999 and 1998, pension
and profit sharing costs aggregated $197,500, $174,733 and $233,181,
respectively.

Subsequent to the balance sheet date, the Company revised its 401(k)
Profit Sharing and Money Purchase Pension Plans. Among other provisions,
the revised plans provide for modifications to eligibility requirements,
a reduction in the contribution required under the former Money Purchase
Pension Plan, and an employer matching component under the 401(k) Profit
Sharing Plan.

NOTE 14 - STOCKHOLDERS' EQUITY
------------------------------

Preferred Stock
---------------

The Company is authorized to issue 5,000,000 shares of $.0001 par
value preferred stock. The stock may be issued by the Board of
Directors of the Company in one or more series and with such
preferences, conversion or other rights, voting powers and other
provisions as may be fixed by the Board of Directors in the resolution
authorizing their issuance without any further action of the
stockholders.

On November 16, 1992, the Company issued 1,500 shares of $.0001 par
value convertible preferred shares to a voting trust, controlled by
management, dated August 1992.  The shares were entitled to 1,000
votes per share (3,000 votes per share after giving effect to the
three-for-one stock split on September 22, 1993).  The holders of the
shares were also entitled to a non-cumulative dividend of $.01 per
share.  In September 1994, the Company exchanged the 1,500 outstanding
$.0001 par value convertible preferred shares for 1,500 shares of
$.0001 par value preferred shares.  The new preferred shares possessed
all the rights of the original issue but for the conversion privilege.
Pursuant to the Subordinated Debenture Agreement between the Company
and CWSPF and SA (Note 11), the 1,500 shares of the outstanding
preferred stock were redeemed in November 1998.

Amended and Restated 1991 Stock Option Incentive Plan
-----------------------------------------------------

The Company has adopted an Amended and Restated 1991 Stock Option
Incentive Plan (the "A&R Plan") whereby options to purchase up to an
aggregate of 625,000 shares of common stock, may be granted to
officers, key employees, directors, and consultants of the Company.
Subject to the terms of the A&R Plan, the Board of Directors is
authorized to select optionees and determine the number of shares
covered by each option, its exercise price and certain of its other
terms.  No one participant may receive an award in excess of 50,000
shares in any one fiscal year.  All options are 100% vested after
twelve months and may be exercised for a nine-year period commencing
one year from the date of the grant.  The exercise price of an option
granted under the Plan may not be less than the fair market value of
the Company's common stock on the date of the grant.


                                  F - 23

<PAGE>        F-24

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 14 - STOCKHOLDERS' EQUITY (Continued)
------------------------------

Stock option incentive plan activity is summarized as follows:

                                                        Option Price
                                          Shares        Per Share
                                          ------        ---------

Options outstanding - November 1, 1998    380,988       $2.12  - $11.00
Granted                                   125,625       $1.438 - $3.25
Canceled                                  (45,500)      $2.876 - $4.252
Exercised                                      --       --
                                          -------

Options outstanding - October 31, 1999    461,113       $1.438 - $11.00
Granted                                   113,275       $1.688 - $2.125
Canceled                                  (76,350)      $1.668 - $11.00
Exercised                                      --       --
                                          -------

Options outstanding - October 31, 2000    498,038       $1.438 - $11.00
                                          =======

Options exercisable - October 31, 2000    390,838
                                          =======

2000 Stock Incentive Plan
-------------------------

In February of Fiscal 2000, the Company adopted the 2000 Stock
Incentive Plan (the "2000 Plan") which supercedes the A&R Plan.
Options outstanding under the A&R Plan at October 31, 2000 will
remain effective until forfeited, cancelled, or expired without
exercise.  The 2000 Plan calls for options to purchase up to an
aggregate of 300,000 shares of the Company's common stock plus such
additional shares as becomes available under the A&R Plan by reason
of forfeiture of awards granted thereunder or cancellation or
expiration of such shares without exercise, and may be granted to
officers, key employees, directors, and consultants of the Company.
 Subject to the terms of the 2000 Plan, the Board of Directors is
authorized to select optionees and determine the number of shares
covered by each option, its exercise price and certain of its other
terms.  No one participant may receive an award in excess of 150,000
shares in any three fiscal-year period.  All options are 100% vested
after twelve months and may be exercised for a nine-year period
commencing one year from the date of grant.  The exercise price of
an option granted under the 2000 Plan may not be less than the fair
market value of the Company's common stock on the date of grant. There
were no options granted, canceled, or exercised under the 2000 Plan
during Fiscal 2000, and accordingly, there were no options outstanding
or exercisable as of October 31, 2000.







                                  F - 24

<PAGE>        F-25

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 14 - STOCKHOLDERS' EQUITY (Continued)
------------------------------

Directors Stock Option Plan
---------------------------

In 1996, the Company adopted a Directors Stock Option Plan (the "DSO
Plan") whereby options may be granted to purchase up to an aggregate of
25,000 shares of the Company's common stock to directors of the Company
who are not officers or employees of the Company or otherwise eligible
to receive awards under the A&R Plan.  Pursuant to the DSO Plan,
eligible directors would receive an option to purchase 1,250 shares of
the Company's common stock on the date the director first becomes
eligible.  The eligible director would subsequently receive an option
to purchase 625 shares of the Company's common stock on the date of
each succeeding annual meeting of the stockholders, unless the
director's term ends on or before that date.  Each option granted is
exercisable at the fair market value of the Company's common stock on
the date granted, and may be exercised for a nine-year period
commencing one year from the date of the grant.

In February 2000, the Company adopted an amendment to the DSO Plan
increasing the number of options, which may be granted under the DSO
Plan, to an aggregate of 75,000 shares.  The amendment also increased
the number of shares of the Company's common stock to be subject to the
automatic grants made to directors from 1,250 shares to 5,000 shares
upon first being elected to the Board of Directors of the Company and
625 shares to 2,500 shares upon each re-election to the Board of
Directors.

Directors stock option plan activity is summarized as follows:

                                                        Option Price
                                          Shares        Per Share
                                          ------        ---------

Options outstanding - November 1, 1998     6,250        $2.876 - $8.75
Granted                                    3,125        $2.00  - $2.252
Canceled                                  (2,500)       $2.876 - $8.75
Exercised                                     --        --
                                          ------

Options outstanding - October 31, 1999     6,875        $2.000 - $7.85
Granted                                   12,500        $1.50  - 3.188
Canceled                                      --        --
Exercised                                     --        --
                                          ------

Options outstanding - October 31, 2000    19,375        $1.50  - $7.85
                                          ======

Options exercisable - October 31, 2000     6,875
                                          ======



                                  F - 25

<PAGE>        F-26

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 14 - STOCKHOLDERS' EQUITY (Continued)
------------------------------

Consultants Stock Incentive Plan
--------------------------------

The Company has adopted a Consultants Stock Incentive Plan (the "CSI
Plan") whereby options to purchase up to 50,000 shares of the
Company's common stock may be granted to consultants or advisors of
the Company.  Subject to the terms of the CSI Plan, a committee of the
Board of Directors is authorized to select participants and determine
the number of shares covered by each option, its exercise price and
other terms.  The exercise price, however, may not be less than the
fair market value of the Company's common stock on the date of the
grant.


Consultants stock incentive plan activity is summarized as follows:

                                                        Option Price
                                          Shares        Per Share
                                          ------        ------------

Options outstanding - November 1, 1998    38,750        $1.752 - $3.28
Granted                                       --        --
Canceled                                 (35,000)       $1.752 - $3.28
Exercised                                     --        --
                                         -------

Options outstanding - October 31, 1999     3,750        $1.752 - $1.76
Granted                                       --        --
Canceled                                      --        --
Exercised                                     --        --
                                         -------

Options outstanding - October 31, 2000     3,750        $1.752 - $1.76
                                         =======

Options exercisable - October 31, 2000     3,750
                                         =======







                                  F - 26

<PAGE>        F-27

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 14 - STOCKHOLDERS' EQUITY (Continued)
------------------------------

Stock Based Compensation
------------------------

In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation". The Company currently
accounts for its stock-based compensation plans using the accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees". As the Company is not required to
adopt the fair value based recognition provisions prescribed under
SFAS No. 123, it has elected only to comply with the disclosure
requirements set forth in the statement which includes disclosing pro
forma net income (loss) and earnings (loss) per share as if the fair
value based method of accounting had been applied.  The pro forma net
loss and loss per share for the fiscal years ended October 31, 2000,
1999 and 1998 would have been $(1,181,682) and $(.48), $(26,008) and
$(.01) and $(136,889) and $(.06), respectively had the new method been
applied.

The fair value of each option grant was estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
weighted average assumptions for the fiscal years ended October 31,
2000, 1999 and 1998, respectively: expected volatility of 83%, 70%
and 80%, respectively; risk free interest rate of 6 1/2%, 6 3/4%, and
6 3/4%, respectively; and expected lives of 5 to 10 years.

The effects of applying SFAS No. 123 in the above pro forma
disclosures are not indicative of future amounts as they do not
include the effects of awards granted prior to Fiscal 1996.
Additionally, future amounts are likely to be affected by the number
of grants awarded since additional awards are generally expected to be
made at varying amounts.

Compensatory Stock
------------------

In December 1996, the Company entered into a written consulting
agreement with a financial consulting firm for a five-year period.
The consultant is to receive 25,000 shares of the Company's common
stock in exchange for consulting services.  The cost of these services
has been valued at $46,875 and is being expensed over the term of the
agreement or five years.

In February 1997, the Company entered into a written consulting
agreement with a financial consulting firm for a two-year period.  The
consultant is to receive 25,000 shares of the Company's common stock
and warrants to purchase 62,500 shares of the Company's common stock
for $1.876 per share, exercisable over a period of five years, in
exchange for consulting services.  The cost of these services has been
valued at $46,875 and has been fully expensed as of October 31, 1999.
In December 1997, warrants to purchase 25,000 shares of the Company's
common stock were exercised.



                                  F - 27

<PAGE>        F-28

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - STOCKHOLDERS' EQUITY (Continued)
------------------------------

Compensatory Stock (Continued)
------------------

In March 1997, the Company entered into a written consulting agreement
with a financial consulting firm for a one-year period.  Pursuant to
that agreement, the consultant received warrants to purchase 62,500
shares of the Company's common stock at $2.00 per share, exercisable
over a period of five years, in exchange for consulting services.

In August 1997, the Company entered into written consulting agreements
with two financial consulting firms for one-year terms.  The
consultants are each to receive 12,500 shares of the Company's common
stock and warrants to purchase 31,250 shares of the Company's common
stock for $1.876 per share, exercisable over a period of five years, in
exchange for consulting services. The cost of these services for each
consultant has been valued at $23,438 and has been fully expensed as
of October 31, 1998.

The amount of unearned compensation related to the shares issued under
these agreements is being reflected as a reduction of stockholders'
equity.

NOTE  15 - INCOME TAXES
-----------------------

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes using the enacted tax rates in effect in the years in which
the differences are expected to reverse.  Deferred income tax
liabilities and assets are comprised as follows:

                                                       October 31,
                                                 2 0 0 0         1 9 9 9
                                                 -------         -------
  Deferred tax assets:
      Goodwill                                 $  581,168       $ 684,045
      Net operating loss                          520,035              --
      Bad debt allowance                          271,401              --
      Other                                        37,539              --
                                               ----------       ---------

  Gross deferred tax assets                     1,410,143         684,045
                                               ----------       ---------

  Deferred tax liability:
      Test passage bank and test development     (133,537)       (268,645)
                                               ----------       ---------

  Gross deferred tax liability                   (133,537)       (268,645)
                                               ----------       ---------

  Net deferred tax assets                      $1,276,606       $ 415,400
                                               ==========       =========

The Company believes it is more likely than not that this net deferred
tax asset will be realized in future periods and, accordingly, no
valuation allowance has been recorded.


                                  F - 28

<PAGE>        F-29

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 15 - INCOME TAXES (Continued)
----------------------

The Company's income tax expense consists of the following:

<TABLE>
<CAPTION>

                                                  Fiscal Years Ended October 31,
                                           2 0 0 0           1 9 9 9            1 9 9 8
                                           -------           -------            -------
<S>                                    <C>               <C>               <C>
  Current:
      Federal                              $  24,616        $ 88,259           $ 36,353
      State                                   27,611          14,188             47,078
                                           ---------        --------           --------

                                              52,227         102,447             83,431
                                           ---------        --------           --------
  Deferred:
      Federal                               (663,077)        (17,355)           (33,396)
      State                                 (198,120)         (7,896)           (21,030)
                                           ---------        --------           --------

                                            (861,197)        (25,251)           (54,426)
                                           ---------        --------           --------

  Provision (benefit) for income taxes     $(808,970)       $ 77,196           $ 29,005
                                           =========        ========           ========

</TABLE>

A reconciliation of the difference between the expected income tax
rate using the statutory Federal tax rate and the Company's
effective rate is as follows:

                                                  Fiscal Years Ended October 31,
                                                    2 0 0 0   1 9 9 9   1 9 9 8
                                                    -------   -------   -------

U.S. Federal income tax statutory rate              (34)%       34%       34%

State income tax, net of Federal income tax benefit  (7)         7         7

Other - including tax free income, goodwill
         and net operating losses                    --        (11)      (23)
                                                    ---        ---       ---

Effective tax rate                                  (41)%       30%       18%
                                                    ====       ===       ===

                                  F - 29

<PAGE>        F-30

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16 - EMPLOYMENT AGREEMENTS
-------------------------------

The Company has employment agreements with several of its key
employees.  The agreements are for varying terms ranging from one to
three years and are automatically extended each year unless the
Company notifies the employee, in writing, ranging from at least 60
to 180 days prior to the anniversary date, that the agreement will
not be extended.

Each agreement calls for a base salary, which may be adjusted
annually at the discretion of the Company's Board of Directors, and
also provides for eligibility in the Company's benefit plans,
incentive bonuses which are payable based upon the attainment of
certain profitability goals, and key man insurance.  Among other
provisions, the agreements include a non-compete clause for varying
periods not exceeding three years following termination of
employment.

The aggregate commitment for future salaries as of October 31, 2000,
excluding bonuses, is as follows:

Fiscal year ending October 31:
                                          2001    $1,098,879
                                          2002       791,900
                                          2003       566,900
                                          2004       121,467
                                                  ----------

                                                  $2,579,146
                                                  ==========










                                  F - 30
<PAGE>        F-31


                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 17- SEGMENT INFORMATION
----------------------------


<TABLE>
<CAPTION>
                                      Assessment    Delivery    Instructional     Total
                                      ----------    --------    -------------     -----

<S>                                <C>          <C>           <C>           <C>
Fiscal Year Ended October 31, 2000:

Revenues                              $4,897,923   $5,074,704    $2,785,497    $12,758,124
Interest and dividend income                 962       52,191         3,084         56,237
Interest expense                         180,789      592,605        44,021        817,415
Depreciation and amortization            685,242      242,865       139,365      1,067,472
Income before income taxes              (842,276)  (1,053,444)      (78,888)    (1,974,608)
Total segment assets                   6,759,378    6,888,414     2,556,857     16,204,649
Expenditures for segment assets          706,081       47,651       162,981        916,713

Fiscal Year Ended October 31, 1999:

Revenues                              $4,591,542   $5,297,127    $2,427,577    $12,316,246
Interest and dividend income              18,653      104,823         4,714        128,190
Interest expense                         155,938      604,653        58,119        818,710
Depreciation and amortization            652,547      198,437       118,514        969,498
Income before income taxes              (332,720)     373,258       217,415        257,953
Total segment assets                   7,391,695    6,448,113     2,544,609     16,384,417
Expenditures for segment assets          777,176       81,391       134,127        992,694

Fiscal Year Ended October 31, 1998:

Revenues                              $4,123,235   $       --    $2,193,879    $ 6,317,114
Interest and dividend income              34,401        2,222         8,210         44,833
Interest expense                         173,437           --        80,392        253,829
Depreciation and amortization            419,818           --       231,051        650,869
Income before income taxes                45,983        2,198       112,026        160,207
Total segment assets                   7,378,923    4,002,298     2,693,419     14,074,640
Expenditures for segment assets          445,880           --        16,747        462,627


</TABLE>

Included in the assessment segment reporting are corporate overhead
expenses of approximately $500,000, $690,000 and $798,000 for the
fiscal years ended October 31, 2000, 1999 and 1998, respectively.

The Company's operations are primarily conducted in the United
States.  Information about the Company's operations in different
geographic areas for the fiscal years ended October 31, 2000, 1999
and 1998, is not considered material to the financial statements.



                                  F - 31
<PAGE>        F-32

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 18 - COMMITMENTS AND CONTINGENCIES
---------------------------------------

Rental Commitments
------------------

Three of the Company's subsidiaries lease office and warehouse
space under non-cancelable operating leases.  The following is a
schedule of future minimum rental commitments as of October 31,
2000:

     Fiscal Year Ending October 31,
                   2001                $  406,070
                   2002                   378,378
                   2003                   374,282
                   2004                   375,225
                   2005                   362,132
             Thereafter                   891,452
                                       ----------

                                       $2,787,539
                                       ==========

Net rental expense totaled $481,774, $411,523 and $29,144 for the
fiscal years ended October 31, 2000, 1999 and 1998, respectively.

In addition, the Company has entered into various operating leases
for equipment and automobiles which require monthly payments
aggregating $8,123. The last of these leases expires during Fiscal
2004.

Alleged Default on Notes and Loans Payable
------------------------------------------

In August 2000, the Company received a letter from Faith Takes, a
shareholder of Former Elley and, currently, the President and Chief
Executive Officer of Elley, alleging certain defaults in the
payment of amounts due and payable under the Asset Purchase
Agreement between the Company, Elley and Former Elley and the
accompanying promissory notes of Elley.  Such demand letter also
alleges additional defaults by Elley in the employment agreement
between Elley and Ms. Takes.  The amounts demanded by Ms. Takes
aggregate approximately $985,000 plus interest, attorneys' fees and
late fees.  The Company believes that it has significant defenses and
counterclaims, as set forth in the terms of the Asset Purchase Agreement
with Former Elley, to such allegations and is currently pursuing
resolution of these issues.  As of October 31, 2000, the aggregate
amount demanded by Ms. Takes has been included within the Company's
financial statement as a component of long-term debt and the
current portion thereof, and accounts payable and accrued expenses
(See Note 9).




                                  F - 32

<PAGE>        F-33

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 18 - COMMITMENTS AND CONTINGENCIES (Continued)
---------------------------------------

Alleged Default on Notes and Loans Payable (Continued)
------------------------------------------

The foregoing alleged defaults trigger a potential cross default
under the Company's outstanding 8% subordinated debentures, in the
outstanding principal amount of $3,530,141 currently held by CWSPF
and SA.   As of October 31, 2000, the Company has not received a
notice of default from CWSPF and SA (See Note 11).

Termination of Former Employee
------------------------------

In January 2000, a former employee of Elley commenced an action
against the Company, Elley and an executive officer of Elley in the
Supreme Court of the State of New York in the county of Albany.
The complaint alleges claims of wrongful termination of employment
and seeks damages in the approximate amount of $300,000 as
compensation for lost earnings under the employee's former
employment contract.  The Company believes that the allegations are
without merit and is vigorously defending the action.  The Company
maintains directors and officers liability insurance which, subject
to a policy deductible, insures the defendant officer, but not the
Company, against such claims.

NOTE 19 - STATE AND FEDERAL EDUCATION DEPARTMENT AUDITS
-------------------------------------------------------

State Education Department Audit
--------------------------------

Elley is currently undergoing an audit conducted by the New York
State Education Department ("SED") relating to its involvement in
the New York State Tuition Assistance Program ("TAP").  In August
2000, Elley was notified that the SED had reached a preliminary
determination of a maximum liability totaling $350,000 based on its
initial findings.  Elley has the right to respond to this
determination before it is finalized.  Accordingly, during September
2000, Elley responded to the SED's determination and believes that
its response will mitigate the SED's proposed maximum liability. This
response is currently under review with the SED.  In addition, the
Company believes it has the right of indemnification, for a portion
of this proposed liability, against the initial purchase price of
the assets of Former Elley, now dissolved, as set forth in the terms
of the Asset Purchase Agreement with Former Elley.  As a result of
Elley's response to the SED and the Company's right of indemnification
under the terms of the purchase agreement with Former Elley, the
Company has accrued $100,000, as of October 31, 2000, which the Company
believes represents its portion of the SED's proposed liability (See
Note 18).

United States Department of Education Audit
-------------------------------------------

Elley is also currently undergoing an audit conducted by the United States
Department of Education ("DOE") relating to its involvement in the Federal
government's Title IV funding program. As of October 31, 2000, the
Company was still awaiting a final determination by the DOE.



                                  F - 33

<PAGE>        F-34

                TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                             AND SUBSIDIARIES

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 20 - TERMINATED ACQUISITIONS
---------------------------------

During the first quarter of the current fiscal year, the Company,
through its wholly-owned subsidiary, TESC, signed a letter of
intent to acquire all of the outstanding common stock of the DuBois
Business College ("DBC"), a Pennsylvania-based, two-year degree
granting business college, and substantially all of the assets and
certain liabilities of Kenawell Technologies, LLC ("KTL"), a
limited liability company which holds several of the real
properties of DBC, for $3,200,000.  In March 2000, after performing
its due diligence review, the Company terminated this letter of
intent.  As a result of this terminated letter of intent and other
failed potential acquisitions during the current fiscal year, the
Company wrote off approximately $250,000 in professional fees and
other due diligence-related costs as of October 31, 2000.  These
costs have been included as a component of general and
administrative expenses within the Company's current fiscal year
financial statements.

NOTE 21 - SUBSEQUENT EVENTS
---------------------------

Reentry Into Federal Guaranteed Student Loan Program
----------------------------------------------------

In December 2000, the Company was notified by the DOE that Elley had
been approved to reenter the Federal Guaranteed Student Loan Program
("FGSLP") effective immediately.  The Company believes that reentering
the FGSLP will assist in further increasing student enrollment since
the FGSLP will provide an additional financial source of funding for
those students who have not set aside educational funds to attend
college.   The Company also believes that reentering the FGSLP will
assist in expediting the inflow of cash since the FGSLP will
mitigate the requirement of Elley to provide alternate financing
arrangements for those students who previously would have received
tuition funding through the FGSLP.

Potential NASDAQ Delisting
--------------------------

On January 2, 2001, the Company received a notice from NASDAQ stating
that the Company had failed to meet the continued listing requirement
of the Small Cap Market because the price of the Company's common stock
had been less than $1.00 for thirty consecutive trading days. The Company
has ninety days to rectify this deficiency, which will require that the
Company's common stock close at a price of $1.00 or more for ten
consecutive trading days. If the Company is unable to satisfy this
criterion, the Company's common stock will be delisted from the Small
Cap Market, and will be eligible for trading on the NASDAQ Electronic
Bulletin Board.

NOTE 22 - REVISION TO ORIGINALLY ISSUED FINANCIAL STATEMENTS
------------------------------------------------------------

Subsequent to the issuance of the Company's financial statements,
management became aware that certain revenue from its educational
delivery division, for the fiscal year ended October 31, 2000
aggregating $75,792, should have been deferred. The adjustments to
properly reflect the deferred revenue resulted in an increase to
deferred tuition revenue of $75,792 and a decrease to revenues for
the same amount. After its tax effect, the adjustment increased the
net loss for the fiscal year ended October 31, 2000 by $45,521 and
increased the net loss per share by $.02.


                                  F - 34

<PAGE>


                              SIGNATURES

            In accordance with Section 13 or 15(d) of the Exchange
Act, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                           TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.

March 16, 2001            By:  /s/ ANDREW L. SIMON
                                -------------------------------------
                                Andrew L. Simon
                                President and Chief Executive
                                Officer (principal executive officer)



March 16, 2001            By:  /s/ DENISE M. STEFANO
                                -------------------------------------
                                Denise M. Stefano
                                Chief Financial Officer (principal
                                financial officer)

            In accordance with the Exchange Act, this report has
been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

     Signature                        Title                   Date
     ---------                        -----                   ----

/s/ ANDREW L. SIMON            Director and Chairman     March 16, 2001
-------------------------
    Andrew L. Simon                of the Board

/s/ MICHAEL D. BECK                  Director            March 16, 2001
-------------------------
    Michael D. Beck

/s/ STEVEN R. BERGER                 Director            March 16, 2001
-------------------------
    Steven R. Berger

/s/ JOSEPH A. FERNANDEZ              Director            March 16, 2001
-------------------------
    Joseph A. Fernandez

/s/ LINDA G. STRALEY                 Director            March 16, 2001
-------------------------
    Linda G. Straley

/s/THOMAS STRUZZIERI                 Director            March 16, 2001
-------------------------
   Thomas Struzzieri

/s/ DAVID L. WARNOCK                 Director            March 16, 2001
-------------------------
    David L. Warnock